What Is API Trading & How Can You Use It?

Technology has revolutionized the way we trade in today's fast-paced and interconnected world. With the rise of digital platforms, trading can now be done almost instantly, with a click of a button, primarily thanks to the power of technology.

However, as the market becomes more competitive and complex, traders must learn to continuously adapt. This is where API trading comes into play—a method that utilizes technology to streamline the trading process.

» Just starting out? Here's our beginner guide to stock trading



What Is a Trading API?

An Application Programming Interface, or API, is a set of rules and protocols that software programs use to communicate with one another. Simply put, it's like a menu in a restaurant—you, the customer, ask for a specific dish and the kitchen (another software) prepares and serves that dish based on the instructions in the menu (API).

Of course, APIs aren't exclusive to the financial markets. In fact, they are used extensively across various industries, serving as the backbone of many services we use daily. For instance, when you use an app like Uber, it pulls data from Google Maps using APIs.

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Examples of Stock Trading APIs

Finnhub

Finnhub is a popular stock market data provider that offers real-time pricing and historical data through its APIs. It also has advanced features such as sentiment analysis and technical indicators that can aid traders in their decision-making process. With comprehensive coverage of financial data, the platform covers a wide range of global markets not just limited to stocks but also includes ETFs, forex, and cryptocurrencies.

Alpha Vantage

Similar to Finnhub, Alpha Vantage offers real-time and historical stock market data through its APIs. While the extent of its data is not as rich as with other stock trading APIs, Alpha Vantage is a suitable free stock market API, as its free plan allows up to 500 API requests per day.

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Financial Modeling Prep

Financial Modeling Prep is one of the best stock market data providers, offering real-time pricing and financial statements through its API service. It also has incredibly advanced and detailed features, such as price targets, insider trading data, and analyst ratings to aid traders in their decision-making process. Its free plan offers 250 API requests per day, which may suffice for most entry-level traders.

» Need an alternative trading method? See the fundamentals of CFD stock trading

Why Use an API for Trading?

API trading offers automation and efficiency. By leveraging a trading API, traders can set specific criteria for trade execution, thus automating the process and eliminating the need for constant manual input. This allows for a streamlined trading experience, freeing up valuable time that can be utilized for other important aspects, such as research and strategy planning.

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How to Use a Trading API

Before you can start using a trading API, you need to have a trading account. The account can be with any brokerage or trading platform that provides API trading support.

Once you're ready, you can proceed to set up your trading API. This process varies from platform to platform, but the general steps are mostly similar:

1. Log into your trading account and locate the section for API trading
2. Find the option to generate a new API key
3. Integrate the new API key into your trading software

You should always look for reliability, as an API that frequently experiences downtime or glitches can severely disrupt your trading. You should also consider the range of features and data provided, such as real-time pricing, historical data, and technical analysis tools.

Tips for Effective API Trading

Manage Your Risk Tolerance

API trading, while beneficial, comes with its own set of risks. One of the key strategies for managing these risks is implementing stop-loss and take-profit orders into your API trading strategy. Stop-loss orders limit your losses when the market doesn't move in your favor, while take-profit orders ensure you cash-in your potential profits when the market reaches your desired level.

» Looking for a reliable trading account? Learn more about opening an account with Fortrade

Optimize Your Trading Strategies

To optimize your trading strategies with APIs, it's crucial to backtest your strategy before implementation. Backtesting allows you to evaluate the efficiency of your strategy using historical data, helping you refine and optimize it. Furthermore, consider leveraging the advanced features that APIs offer, such as sentiment analysis and technical indicators.

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Stay Updated on Changes

API providers often update their services to improve functionality or add new features. To ensure you're getting the best out of your trading API, it's important to stay updated on these changes. You can do this by subscribing to your provider's newsletter or regularly checking news websites. Also, consider joining online communities or forums where discussions about updates and improvements often take place. This will not only keep you informed but also provide you with tips and strategies from other API users.