update 18 August 2021

Significance of APIs in Cryptocurrency Trading

In the past, financial trading took place over the phone, where you had to call up your broker to execute a trade on your behalf if you wanted to buy stocks. However, during this post-internet age, the application of technology has moved the buying and selling of financial securities online. It has advanced the process in many ways, like the creation and use of APIs.

The introduction of Bitcoin led to the birth of Crypto APIs. Since then, the APIs have become increasingly popular for professional crypto traders who use the trading software.

What is an API?

API stands for Application Program Interface. It is an interface between two applications that can communicate with one another. It sounds more complicated than it is. An API acts like a messenger that takes requests and tells a system what to do – then returns the system’s response to you.

What most people don’t realize is that they use APIs almost every time. For example, if you search for a new home online, there’s an API used by the website to comb through a database of available apartments or multiple listing services.

Developers make APIs as pre-packaged, plug-and-play applications that a website can use to facilitate users’ complete experience.

What is Crypto Trading APIs?

Crypto APIs provide information about cryptocurrencies and allow you to interact with a trading system. Below are some given examples of things crypto APIs can do:

  • They gather price data from several different exchanges, ensuring that you get all of the latest information on current and historical prices.
  • They show trading volume, opens, closes, high and low points, etc.
  • They rank the most common coins by current popularity, overall trading volume, or other statistical data.
  • They display reliable news feeds about stories connected to the crypto markets.

How Traders Use Crypto APIs

Anytime a user enables an API, they give it their API private and public keys. The API uses these keys to let the exchange know that it can access your account information on that exchange.

Besides, these keys can be used by third-party services to access data within an exchange. A crypto API can gain access to market information, trade on behalf of the user, and can also obtain access information on the user’s funds in their account. Once a user deletes their API keys on the exchange, they withdraw the API’s access to their account.

Crypto APIs have two main settings required for them to work correctly: the ability to collect “balance” information from your account on the exchange and two is the ability to make a trade.

Significance of API’s for Crypto Trading

  • Time Saver

Trading can be tedious and time-consuming, especially on rebalancing. A study on rebalancing done over one year ago determined that rebalancing one’s portfolio every hour would outperform other rebalancing rates.

Taking time out of each hour of your day to rebalance your portfolio almost sounds unreasonable. And if a user can manage a diversified collection, it will take an even more significant amount of time to rebalance. However, rebalancing at this rate is one of the best ways to perform well on an exchange.

The good thing about APIs is that they don’t worry about how time-consuming something is. All you are required is to give the API the correct instructions, and it’s off to the race. Therefore, a pro trader can dedicate more time and resources to market research or leisure.

  • Increased Speed: Precision

APIs are way faster compared to manual traders. You start to realize the real importance of precision once you spend more time making trades and understanding price points in the market. To predict a crypto’s highs and lows are impossible for anybody, though calculations can get pretty close.

Precision is everything when it comes to severe traders. However, people are imperfect, but luckily, APIs aren’t. Once you give it instruction, it will perform its task every time and in a precise fashion.

For example, let’s say you decide to sell a certain amount when bitcoin hits $9,000. Working manually, you would have to watch the stock always or wait for a notification to tell you when it reached that price. Because bitcoin is highly volatile, you may be too late even if you saw the exact moment it hit the desired price point. The rate would have probably changed in the time it takes you to execute a trade. It’s hard to say how rapidly prices will fluctuate in cryptocurrency. But, with a properly programmed API, you are going to sell at that $9,000 mark the instant it occurs.

  • Reduced Risk

Human traders often face greed, FOMO (fear of missing out) during pumps, or panic selling during dumps. It can lead to some losses. For APIs they solely rely on indicators and configurations and will not trade on any emotion. APIs, therefore, will reduce unnecessary losses.

  • Expanded Opportunities

Crypto markets are notoriously volatile, so it is crucial to employ a solution that can minimize dormancy to execute orders at the desired price quickly. A human trader can only focus on a limited number of trades per day.

Still, an API can theoretically run an unlimited amount of deals every day and only be limited by the trading opportunities. It can execute much larger trades without risking price slippage and also increase the liquidity of any cryptocurrency holdings.

  • 24/7 Markets

Cryptocurrencies have no business hours. That is, the crypto market never closes. It requires a trader to regularly watch the market to get a complete view of what’s going on. It seems impossible. It would be best if you had some sleep and do other things with your life. But APIs don’t sleep.

Using APIs doesn’t force you to implement only one strategy and be stuck. You can use different strategies for different times and situations. This way, you can go to sleep without stressing that you are missing out on a great trade or that your portfolio might suffer through the night.

Bottomline

Cryptocurrencies are still relatively new, meaning they are highly unregulated. Prices have massive fluctuations, which can offer to make enormous profits or could result in huge losses. Given the volatile nature of the crypto markets, crypto trading APIs can come in handy. All crypto traders could benefit from at least some automation and precision, if not a lot.

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Featured image courtesy of Shutterstock.

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