Application Programming Interface (API)

What Is an Application Programming Interface (API)?

An application programming interface (API) is a set of programming code that queries data, parses responses, and sends instructions between one software platform and another. APIs are used extensively in providing data services across a range of fields and contexts.

APIs have become increasingly popular tools, with the likes of Facebook, Amazon, SalesForce, and many more establishing their own APIs that allow companies to access some of their services without having to fully migrate into their ecosystem. This new paradigm has led to the rise of what some experts call the "API economy," a model that enhances a company’s bottom line by improving interoperability and thus creating new systems from existing ones.

In the domain of financial markets and trading, one may use an API to establish a connection between a set of automated trading algorithms and the trader's preferred trading broker platform for the purpose of obtaining real-time quotes and pricing data, or to place electronic trades.

Understanding Application Programming Interfaces (APIs)

APIs have become increasingly popular with the rise of automated trading systems. In the past, retail traders were forced to screen for opportunities in one application and separately place trades with their broker. Many retail brokers now provide APIs that enable traders to directly connect their screening software with the brokerage account to share real-time prices and place orders. Traders can even develop their own applications, using programming languages like Python, and execute trades using a broker's API.

There are two types of traders that use broker APIs:

Despite the obvious benefits of APIs, there are many risks to consider. Most APIs are provided to a broker's customers free of charge, but there are some cases where traders may incur an extra fee. It's important to understand these fees before using the API.

Traders should also be aware of any API limitations, including the potential for downtime, which could have a significant effect on trading results.

Where to Find APIs for Traders

Many brokers provide online documentation for their APIs, where developers can find out exactly how to authenticate with the API, what data is available for consumption, how to place orders through the API, and other technical details. It's important to be familiar with these details before choosing a broker when looking for specific functionality.

Some brokers also provide libraries in various languages to make interaction with their API easier. For example, a broker may offer a Python library that provides a set of functions, or methods, for placing a trade rather than having to write your own functions to do so. This can help accelerate the development of trading systems and/or make them less costly to develop.