How Technology Affects Trading?
If there is one thing that is constantly evolving, it is technology. Earlier, trading was limited to a few brokers and investors as everything was done using physical resources like paper use. However, with the update in technology, trading has become cheaper and accessible to all. Now, everything is virtual. You can be in the UK and still trade securities in Brazil with a local trader’s help. Numerous trading software programs get updated continuously. These software programs make trading fluent. One such software application that has carved a niche for itself in trading is the API.
What is API Trading?
API or Application Programming Interface is software that links coded algorithms with the broker’s platform that software application links an investor or traders’ front-end system with the broker’s back-end system. Trading Broker API builds custom trading applications. Coded algorithms have become immensely popular in the last five years, especially when trading in the Forex market. Those brokers who use API for trading are referred to as API trading brokers.
Before deciding whether you should hire a broker who uses API for Forex trading, let us discuss what API trading actually means.
You know that every investor or trader needs to stay connected with their broker. That does not mean that you need to visit their office every day. This can be done using various trading platforms.
API software programs are mostly used for trading instruments like Forex and CFD.
Some traders might be worried about their conversations with their brokers as these things are susceptible and confidential. An API software will not only make communicating with your broker smoother but will safeguard the entire channel by encrypting it. API tradings are highly regulated and thoroughly tested.
Since the link between you and your broker will be safe, you can use it for various things like conducting trade orders, verifications, settlements, and more. All the data is securely stored, and you can access market data for the last month, years, and even month if you need it. Viewing live prices is also one of the features of this software.
Broker API Comparison
Hotforex brokers use FIX API. This API is based on the RapidAPI platform, where various developers can create their own API. This is not a trading industry-agnostic platform.
Alpaca trading API – A Python library is available in Alpaca API, which takes care of authentication and error checking while simplifying sending requests and receiving information. Below is a video where you can learn Coding a Python Stock Trading bot with Alpaca.
Interactive brokers trading API offers various applications that traders can download for free. Please see below How to use IBPy Python with Interactive Brokers TWS API For Automated Trading:
For example, Download Trader Workstation (TWS) API
API is usually some programming script, and each script has some goal.
See how broker API works:
FIX API trading software
FIX API, or Financial Information eXchange (FIX) protocol, helps traders connect with liquidity providers to get streaming quotes. It represents a set of clearly defined rules and methods designed specifically for the electronic transfer of financial data. FIX API facilitates the transfer of Pre-trade information, Trade-related information, and Post-trade data.
Pre-trade information includes levels of liquidity, order flow, and depth-of-market statistics streaming directly from exchange or market servers.
Trade-related information implies order entry, confirmation, and execution functions that involve the transfer of data through FIX: post-trade data records, processes, and transfers of asset ownership involved with market-based transactions.
Advantages of APIs in Trading
There are various advantages of using API software for trading, the most important being data storage. If you have been trading for a long time, you know how difficult it is to manage data accumulated over the years. With this software’s help, you can easily store, manage, and access all the data prices. API also tracks live market data that the traders can use to understand the price movement and conduct trades.
Some features are exclusive to institutional trading account holders, but you can access them using API software. For example, you can enable automatic stop losses. This will reduce the risk to a certain level. You can immediately execute and trade and receive confirmation too. You can even trade anonymously if you don’t want your data to get stored on the platform.
Disadvantages of APIs in Trading
Let’s acknowledge the elephant here; not everyone will be comfortable with using API-enabled trading platforms. One needs to have at least some knowledge about using this application.
From the broker’s point of view, developing and maintaining an API-enabled trading platform requires investment in time and capital. This will not sit well with new brokers. Another disadvantage is that if you don’t have a good team, an API application can be hacked.
Our verdict on API Brokers
Everything comes with its fair share of advantages and disadvantages. The same is the case with API trading. What needs to be contemplated here is if the positives overtake the negatives.
There is no doubt that API trading proves to be a sync between the traders/investors and brokers by linking their back-end and front-end windows, respectively. It offers a wide range of features that make maintaining data and minimizing losses possible. It also aids customer support in connecting with investors and traders.
On the downside, it is prone to hacking. However, this can be dealt with if you have a good technical team. While there are higher chances that you will lose your physical data, the chances of API getting hacked are lower.
How to Compare API Brokers?
Broker API comparison can be confusing if you are unaware of the starting point. However, with the help of the following points, you will be able to compare API brokers and choose the one that is the best for you:
- Their technical team
An API broker will definitely need a better technical support team as compared to other brokers. This is because API-enabled trading platforms need to be constantly upgraded and encrypted. A single glitch can make confidential data unsafe. Thus, do your research and check how adept is the technical team of your broker.
- Their user interface
API software is used to link traders/investors to brokers. While there are chances that brokers will find it easier to understand its usage, it can be a little challenging for the traders/investors. However, if the technical team can make the transition easier for the traders/investor by developing a user-friendly interface, create a demo account to check if you can understand everything.
- Their regulatory body
Irrespective of how your broker is using advanced software programs, if an authority does not properly regulate them, your trade and funds will never be secure. In case of disputes, it is the regulating bodies that can intervene and help you. If you are not working with a broker under their jurisdiction, you will be on your own. These regulatory bodies will also prevent the brokers from using your deposit in case they go bankrupt.
- Their customer support
Good customer support should always be on your priority list when looking for a good API broker. Customer support will help you in understanding the platform and guide you through the glitches and issues. It is always important to check if the services are available 24/7 and in your regional language.
- Their commission and fees
It is given that if you are opting for a more advanced platform, you are expected to pay a little more. Since maintaining API software is not cheap, it is reasonable that the brokers would want to share the cost with you. This will affect their regular fees and commission. Therefore, it is ideal to discuss such things before joining the platform.
Conclusion
We are moving towards automated trading, and API is becoming an integral part of it. With time, more brokers and traders are joining this wagon. Yes, there are some problems, but they are still manageable. With time, we believe that the application will become better and more people will be using API-enabled trading platforms.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
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