You use APIs all the time, but how can they be used for trading crypto? Let’s take a look at what APIs are and the role they can—and do—play for crypto traders.
What Are APIs?
API stands for Application Program Interface. With all the acronyms that flow across your screen from day-to-day, it can be tough to digest the alphabet soup. So, here’s a simple explanation of APIs:
APIs help one app talk to another app. You use them all the time. For instance, if you search for a new home online, there’s an API used by the website to comb through a database of available homes, the national MLS, or multiple listing service. Here are some other examples of common APIs and services that use them:
- Google Maps, MapQuest, etc. – an API that gives you access to information from GPS satellites and maps.
- Yahoo Finance – an API provides statistics and charts based on financial data.
- DoorDash – an API on the site gives you access to restaurants’ menus.
- E*TRADE – APIs are used to provide access to the prices of stocks.
In short, APIs are made by developers as pre-packaged, plug and play apps that a website can use to offer a more complete experience.
For example, if E*TRADE didn’t have an API that accessed up-to-date stock prices, before making a trade, investors would have to call in to the live trading floor and talk to someone looking at a screen with stock prices. By the way, the info on that screen—you guessed it—is provided by an API.
When someone writes an app, each API they use is like a programming shortcut. If they want their app to provide real estate data? There’s an API for that. If the developer wants their app to show the time in London, Singapore, and Dubai, there’s an API for that. Live news ticker? There’s an API for that. Pictures of outer space? Yup, one of NASA’s many APIs provides that, too.
What Are Crypto APIs?
Crypto APIs provide information about cryptocurrencies. Some crypto APIs simply output helpful data, while others are able to execute trades. Here are some common examples of things crypto APIs can do:
- Provide information about the current price of a cryptocurrency
- Show trading volume, opens, closes, high and low points, etc
- Provide historical trading data
- Display news feeds about stories connected to the crypto markets
- Rank the most popular coins by overall trading volume, current popularity or other statistical data
As a trader, you will most likely encounter these kinds of APIs while accessing a bitcoin trading platform like Binance, Coinbase, or Changelly because they may choose to incorporate APIs such as these in their site.
If you’re a developer, you could use APIs like these to build your own trading resource, but you will most likely find it easier to simply use APIs that have already been incorporated in a trading website. So, other than providing information, how can APIs help you place trades?
APIs Used for Placing Crypto Trades
As discussed, there are APIs that provide price information. There are also APIs that execute trades.
Professional traders and web trading services use these in combination to place trades. All aspects of a trade, including the timing, the entry point, the exit point, take profit levels, and stop losses, can be executed by APIs.
APIs are often combined to help traders place better trades. For example, data from a price API can be combined with data from a trading history API to output reports regarding prices that triggered fervent trading activity. When these price levels are reached in the future, a trader may use that information in a trading strategy and place a trade accordingly.
How Are APIs Used with Crypto Trading Bots?
Trading bots simply place trades based on data, and APIs can be used to provide the data bots use to place trades. Some of the most common examples include:
- Arbitrage trading bots: A crypto arbitrage trading bot scours the cryptoverse for arbitrage opportunities and then capitalizes on them to help make a profit. If the crypto API the bot uses sees a currency that’s underpriced in one market but overpriced in another, it can execute a trade to buy low and sell high.
- Momentum trading bots: A bitcoin API or other crypto API is used to calculate the strength of the momentum of price action. When the momentum has enough inertia, the bot places the trade. If the price continues to move in that direction, the trader can make a profit.
- Mean-reversion trading bots: APIs are used to calculate the mean price over a given period of time. When the price deviates too much from that level, mean-reversion principles dictate that it’s going to revert back towards the mean. When the bot observes a deviation that’s big enough, it places a trade in the direction in which the price is going to revert.
Are Crypto APIs Safe to Use?
As far as the security of your data is concerned, if no one has access to your account or wallet information, there’s very little risk of your data being compromised. When you are using an API, it is simply harvesting and processing data for your benefit.
It can be risky, however, to over-trust bots that use a bitcoin API, or a combination of several APIs. Crypto bots merely process data and use it to place trades. There may be variables the bot doesn’t take into consideration, however, and these could be important to your strategy.
Try to use API-based bots that can adjust according to the amount of capital you want to risk. These bots can use an API to calculate the amount of money you should invest in a trade, which helps mitigate your exposure.
APIs are the backbone of all fully-automated trading. They shovel information to trading bots that then parse through it to inform their “decisions.” Anytime you use a bot, a trading application, or a brokerage, you are benefitting from a crypto API.
Source: Bitcoin Market Journal