How APIs Keep the Crypto Industry Ticking
We have technology to thank for the democratization of trading, both the technology that has simplified the trading of traditional financial assets and the technology that has decentralized modern finance and given birth to the cryptocurrency industry. One of the key cogs in the construction of modern online trading is the API, or Application Programming Interface. APIs are the unsung heroes of the trading industry, and many other online industries for that matter. In this article, we are going to take a look at what APIs are, how they work and why they are so important for the crypto industry.
What Are APIs?
Let’s briefly return to the old trading paradigm in which you had to call up your broker if you wanted to make a trade. In that situation, you are the buyer or seller and you are transacting with a market, but in order to transact with that market, you need an intermediary. While everything has changed, the fundamental roles of that paradigm have remained with us to this day. As a trader, you are still seeking to connect with a market to trade on and your ability to connect to that market is dependent on the intermediaries you use. APIs have stepped into the intermediary role, and our ability to trade with accurate, real-time information is made possible by their deployment across the crypto industry.
Whenever you use an online application you are likely using an API. This is because APIs allow applications to communicate with each other, and share information with each other without having to build the necessary functionality into their own platforms. Think of them like little messengers that are perpetually maintaining contact between different independent entities in real-time, regardless of whatever space or time differences there may be.
One of the most illustrative examples of the role APIs play in our online experience can be found in the different popular price aggregation websites. If you are looking to buy plane tickets somewhere, chances are you will check out what the best prices available are. To do that you will head over to a price aggregator site that will take the information that is relevant to you (where you are going, when you would like to go, etc.) and match it with the information that it has collated from the hundreds of different sites that it is in contact with.
APIs make that operation possible without those aggregation sites having to build all the features of the individual sites that they correspond with into their own. This not only benefits those sites, but also the end-user who can receive all of that information in a timely way and plan their trip accordingly.
How APIs Are Used in Crypto
Anyone who has spent a decent amount of time in the crypto industry knows that things change at the drop of a hat. Projects that enjoyed success yesterday struggle today and vice versa. Over the course of just a couple of hours, things can change drastically. As a trader, you are given a herculean task in trying to stay up to speed on everything in order to make informed decisions.
APIs exist in the crypto industry to make informed trading possible, and if you have engaged in trading cryptocurrency on an exchange, you have taken advantage of the APIs that are in place. Primarily, crypto APIs open up access for traders to market data on exchanges and blockchain protocols. There are APIs for everything: Bitcoin APIs, Ethereum APIs, exchange APIs, etc. Thanks to the wide variety, traders have current prices for a vast range of cryptocurrencies, historical performance data, trading volume figures and more at their fingertips and in real-time.
Another essential kind of API in crypto is the live execution API. This allows users to integrate their wallets and other third-party tools into exchanges and other platforms without having to separately login to them. Thanks to these APIs communicating with all the different platforms, users are provided a clearer picture of the market and can save time by not having to operate on multiple platforms at the same time.
While these APIs make trading feasible for all parties, where they have truly emerged as invaluable is in the world of algorithmic trading. Algorithmic trading is huge in traditional finance, but in crypto it has really come into its own. Unlike stock market trading, crypto trading never stops. There are no market closes. And as we have noted previously, things change at a rapid pace. With the help of crypto APIs, professional and corporate crypto traders that execute large volumes of trades can do so.
In order to trade successfully on a large scale, traders have to employ complex strategies that are based upon large quantities of data. APIs allow traders to process that data and use it to identify profit points and recognize opportunities. The trading itself is done by bots and trading software that uses the data it receives from APIs in real-time to execute orders in line with the strategies modeled by traders.
Finding the Best APIs
Like most things in the crypto industry, finding the right API for you will be largely dependent on what your wants and needs are. As a rule of thumb, if you are looking for a trading API there are two things that you should be looking at: ease of use and amount of data processed. You are not going to want to spend a lot of time learning how to use the API, it should be fairly intuitive, and you are not going to want to limit your trading strategy by employing an API with narrow operability.
In addition to that, there is always the issue of speed. Nowhere is the old adage that time is money more accurate than in the world of crypto trading. You are going to want a low latency API that will keep you on the cutting edge of everything that is happening on the market. And a good way of checking how reliable and fast an API is is by looking at its price information. If you go to one of the leading price aggregation sites and compare it to the API you are considering you should not notice any significant price discrepancies.
The easy way to find a good API is by going to a reputable source. Most major exchanges on the market offer trading APIs that will take care of whatever needs you may have as a crypto trader. Exchanges like Kraken, ChangeNOW and Bittrex all offer great API solutions with transparent documentation that will provide you with all the relevant specs and let you know if the API will work with the strategy and tools that you are using.
Safety is always something to consider when transacting, and is especially important when you are looking to entrust your trading activity to an automated service. So you should do as much research as possible before committing to any one API. Appearances are not always as they seem, and while the above-mentioned exchanges offer pretty solid APIs, other big names in crypto, like Binance and Coinbase, have had a lot of issues with the APIs that they have released.
The bottom line here is the specific needs that a user has and how comfortable they will be using an API. Some prefer to use a single API in their crypto operations, others employ multiple APIs — it all comes down to what is best for the user.
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