What is an API and how are they used in cryptocurrency trading


What is an API

An API is an application programming interface that helps applications communicate with each other. In everyday life, we constantly use the API, but we do not always realize that we are dealing with them.

For example, when we search the Internet for a house to buy, we find a website in which the site’s API is used to obtain information from the corresponding real estate database of this resource. Here are examples of commonly used APIs:

  • Google Maps, MapQuest, etc. – An API that provides access to information from satellites and GPS maps;
  • Yahoo Finance – an API that provides financial statistics and allows you to draw charts based on such data;
  • DoorDash – an API that allows you to get information from the restaurant menu;
  • E-TRADE – an API that allows you to view the prices of certain securities.

In fact, APIs are created by some developers for others as a set of ready-made classes, functions, procedures, structures and constants in a certain format – so that as a result, a user on another site or application can get information that is convenient for understanding.

For example, if E * TRADE did not have an API that allows you to obtain relevant data on stock prices, then investors would have to call the real trading platform and speak with a broker who can communicate such data by looking at the computer screen of the internal network of this Company. (Although, this network should receive such data from somewhere using the API).

Thus, in order to get the exact time in London, Singapore or Dubai, the API from the corresponding resource is used. To see the image from the NASA space telescope, you can also use the corresponding API from the website of this agency.

Cryptocurrency APIs

Cryptocurrency APIs allow you to receive up-to-date information on digital currencies and their prices from such sites as Binance, Coinbase or others. In particular, these may be:

  • Information on the current price of a particular cryptocurrency;
  • Trade volume data;
  • Opening, closing, high and low prices, etc .;
  • Historical data on the trading of certain cryptocurrencies;
  • News feeds reflecting the situation in the cryptocurrency market;
  • Rating of coins by trading volume, popularity, etc.

Having received such data, you can use it to optimize trading manually or using bots, as well as for other purposes, for example, to post information on your website.

 Placement of transactions using the API

Professional traders use the API to place trades on exchanges. The APIs in this case allow you to set the transaction time, entry / exit point, take profit and stop loss levels, etc.

The APIs also allow traders to improve their trades through the use of combined data. For example, the price API can be combined with data from the trading history when placing a transaction in order to analyze the possibility of making a profit.

How APIs are Used in Cryptocurrency Trading Bots

Trading bots also use the API, and place trades using such data. Here are the most common examples of how cryptocurrency trading bots work:

  • Arbitrage trading bots explore the cryptocurrency market using the API for arbitrage opportunities for profit and place relevant transactions. For example, if a bot sees that a particular cryptocurrency is underestimated on one exchange and revalued on another, then this becomes a signal for a transaction that allows you to make a profit due to the difference in prices on exchanges;
  • Impulse trading bots use the API of cryptocurrency platforms to calculate the strength of the momentum of the price movement of the cryptocurrency, trying to “predict” the price (for example, its growth) and place the corresponding transaction for profit;
  • Trading bots using the rule / law of alternation (“the market does not manifest itself equally twice in a row”). APIs in this case are used to calculate the average price for a certain period of time. If the price deviates too much from this level, then the principle of restoring the average value tells the bot that the price will return to the average value, and that it is time to place the appropriate deal in order to make a profit.

Are APIs safe to use

Thus, modern automated cryptocurrency trading relies entirely on APIs that transmit information to trading bots that are able to analyze the situation on the market and make decisions that are beneficial to users.

In essence, the API is the use of publicly available (most often) data in your applications for profit, and it is unlikely that this is aimed at stealing your funds. Your security can only be compromised if an attacker can get into your account with wallets and funds.

On the other hand, excessive trust in bots that rely on the API can be risky, as they may not take into account some variables that are important for your strategy (this will also depend on the settings and code features of the bot itself).

You should also make sure that the bot does not risk the entire amount that is contained in your wallet, but only uses the part of it that you are willing to risk.

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