Growing markets, regulatory approval, and an increasing number of algorithmic trading API, all have made trading markets using API a trend. Also, brokers have played a key role in making algorithmic trading accessible to retail traders and firms to a great extent.
There are different ways in which one can trade markets. One method is using the trading API provided by the brokers. This blog covers a brief overview of API, their types and some brokers offering trading API.
Let us find it all out further with the index that covers:
- What is an API?
- Example of an API
- Types of API
- Why use API for trading?
- Popular API to get real-time and historical market data
- Brokers’ API to automate trading
- Steps to start trading with API
- Example of trading with an API
- Resources for getting API
What is an API?
API is an acronym for Application Programming Interface. An API is a software intermediary with the ability to make two software applications talk to each other. Let us dive into understanding how APIs work.
As you can see in the image below, the API’s role comes in the middle of the application and server when you send a request to the application to do something.
Hence, while trading, when you place a request for fetching the data on an application, the application sends the request to the server via trading API. After reaching the server, the request gets processed and the desired result shows up.
Example of an API
An API offers the following services to the traders:
- Market feeds (Historical data for analysis, Streaming or live data)
- Order related facilities (modification as well as placing the orders, status update, trade information etc.)
- Report about order book (where an order is received) and trade book (shows executed orders) etc.
- Transaction info and much more!
Types of API
Now let us take a look at the different API types. I found this chart which gives a good break-up of the API types. We will cover some of the API that find usage in trading.
This is how the API are classified:
REST API
REST or Representational State Transfer is an API that involves using HTTP for making requests. It is used in applications wherein some information needs to be transferred based on user action.
For real-time transfer or streaming of data, REST is not the best protocol and WebSockets can be used instead. We have covered WebSockets in the next part.
REST API have been used in the trading domain when a trader’s requirements are:
- Flexibility - as they can handle a lot of requests simultaneously for different order executions
- Scalability - since they are designed for the communication between two software applications regardless of their size or capability
- Easy adaptability to web technologies - which makes them easy to build and use
WebSocket API
WebSocket is a protocol that allows for transferring data to and from the servers. The socket that is connected to the server stays open for communication. Thus, data can be pushed or requested in real-time on-demand.
WebSocket API have been used in the trading domain when a trader’s requirements are:
- Real time transfer or streaming data, which is a big plus with WebSocket API while trading. It helps with data transfers during the live market hours, especially with high-frequency trading.
- Customisation of trading strategies after fetching the data
Library-based API
Library-based API make it convenient for the developers since the libraries consist of the codes or binary functions. These libraries can be directly referred to for making the application interact with the API. Hence, the developers do not have to spend time writing codes.
The main use of Library-based API is that the market quotes can be pulled, orders can be sent or modified, historical data can be extracted, etc. with help of the libraries. For instance, Zerodha’s Kite Connect API has its own kiteconnect library where the codes for trade orders, execution etc. can be found.
Why use API for trading?
Let us now see why an API is preferred for trading. Following are some of the benefits:
Safety
The communication between the trading API website and you happens via small packets of data consisting only of the information it is told to take. For example, only the trade order goes through the trading API and no other information from your system.
Customisation of API according to the needs
With a trading API, the most useful point is that the user interface can be customized to the needs of the traders. Hence, the trading API can be used as per your preference.
Getting real-time data
With a trading API, you can get the streaming or real-time data for your trades. For any trader, getting real-time data is the main and the first step. With quick access to real-time data, you can make your trading journey a success.
Flexible REST API
The trading APIs provide you with flexible RESTful API that are compatible with multiple computer languages suited best to your comfort and need.
Popular API to get real-time and historical market data
There are two types of data providers for accessing real-time data:
- External providers
- Brokers
External providers
Following are the known Indian external providers of real-time data with benefits such as low latency feeds via direct exchange connectivity.:
Now, let us see the global external provider for real-time data which is Finnhub. Finnhub makes use of state-of-the-art machine learning algorithms to collect, clean, and standardize data across global markets.
Brokers
The most known Brokers that provide data through their API are:
- Zerodha - Kite Connect - Indian broker
- Interactive Brokers - Global broker
Brokers’ API to automate trading
Going further, the following are the popular brokers with API for automating the trading process:
Steps to start trading with API
One common practice of the traders using a trading API is Anaconda installation for Python usage. Since Python is the most preferred language, all the steps are explained in Python itself.
Let us find out how to start trading with API. Following are the common steps:
Step 1 - Registration and keys
Register with the API provider and get API keys (API key and API secret key)
Step 2 - Building an API
Choose the language or app to build API. you can use any language most suitable for you. For instance, C, C++, Python, Java etc. Also, if you are into High-Frequency Trading, then C++ is usually opted for and in Low-Frequency Trading, Python is usually opted for.
Step 3 - Logging in
Now, login to the trading API using API keys
Step 4 - Access
After logging in, you can now access all the features like fetching data (historical as well as current), placing the order, modifying orders, getting details of your account like margin available, stocks you are holding, and the status of the orders placed etc.
Suggested reads:
- Using IBrokers package to implement R in Interactive Brokers API
- Using IBridgePy to implement Python in Interactive Brokers API
- Trading with Python in Indian Markets Using Zerodha Kite Connect API
Example of trading with an API
Let us see how one of the trading API work by taking the example of Binance for Crypto Traders.
With Binance’s example, let us see how you can begin trading with the API. Following are the steps:
Step 1 - Registration
Register yourself on this page:
Step 2 - Creating an API
After you log in, go to API management from the Dashboard and click on “Create API” after which you will get a security verification pop up like this:
Step 3 - Verification
After completing one level of verification, you need to fill in the security verification details and proceed. Here is an example:
The authenticator code will be randomly generated in Google authentication.
Step 4 - Create an API key
Now, create an API key with a name. Here, we are using the name “QI_blog”
Step 5 - API creation
Then, you need to create an API key and a secret key. This is what your created API will look like:
You must make sure that you note down the API key and the security key otherwise it will be masked the next time you log in.
Also, you must go through the tutorial section by Binance to get started as someone who is new to using trading API.
How to install the Python-binance library?
The most simple and best method to install python-binance library is this:
pip install python-binance
Also, there are several third-party libraries available and the most popular ones are:
How to secure the API keys?
The API keys must be stored as environment variables which will keep you from revealing your credentials when you upload the code to GitHub.
Following is the syntax:
set binance_api=your_api_key_here set binance_secret=your_api_secret_here
Also, you can make sure that the keys are saved right by using the command prompt as follows:
How to get the latest price for Bitcoin with Binance API?
The best method so far is to use this function:
get_symbol_ticker
You can pass through any ticker here as opposed to BTCUSDT if you’re after another asset.
Output:
{'symbol': 'BTCUSDT', 'price': '35925.46000000'}Also, you will find several libraries that ease the process of calculating technical indicators. Check out the API documentation to see a detailed Python coding assistance.
Resources for getting API
Each trading API consists of “API documentation” to guide you regarding the details including the introduction, codes etc. to begin using the trading API. Here, you can find a list of the API documentation for each:
- Interactive Brokers LLC documentation
- Binance API documentation
- Zerodha - Kite Connect 3 / API documentation
Conclusion
Trading API are a faster and more convenient way compared to the traditional methods of trading in the financial markets. In this blog, we discussed the information with regard to basic knowledge of API as well as a list of API to connect with for a successful trading experience.
If you want to trade in the financial markets using API, algorithmic trading knowledge is all that helps. Getting started with Algorithmic Trading with this course by Quantra helps you know more about algorithmic trading and coding know-how. Be sure to check it out!
Note: The original post has been revamped on 23rd May 2022 for accuracy, and recentness.
Disclaimer: All investments and trading in the stock market involve risk. Any decision to place trades in the financial markets, including trading in stock or options or other financial instruments is a personal decision that should only be made after thorough research, including a personal risk and financial assessment and the engagement of professional assistance to the extent you believe necessary. The trading strategies or related information mentioned in this article is for informational purposes only.
