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A Beginner's Guide to Crypto APIs

A Beginner's Guide to Crypto APIs 101
Source: iStock/TimArbaev

Crypto APIs have become increasingly popular for experienced crypto traders that use trading software or algorithmic trading bots.

In this guide, you will be introduced to what crypto APIs are, who uses them, and what to look for when choosing one.

What are crypto APIs?

API stands for application program interface. In simple terms, APIs enable one software application to interact with another.

APIs make the job of developers easier because instead of having to build every aspect of a program from the ground up, they can plug-in APIs that already provide what they need for their application.

An example of an API would be Amazon’s product API, which enables website owners to link directly to a product on Amazon and add a “buy now” button. The API can pull up a product’s information, current price, and enables users to click through to the retailer and make a purchase (using a tracking link that rewards the affiliate).

In the cryptoasset markets, APIs enable access to market data on exchanges or blockchain protocols. The two most common APIs are price and trade execution APIs.

Every reputable digital asset exchange offers price APIs. These APIs enable users to pull historical as well as live price data directly from the trading platform. Most exchanges also provide live execution APIs. Trade execution APIs enable traders to trade using third-party platforms, such as crypto wallets with built-in exchange functionality or desktop trading terminals, without having to log on to the trading platform directly.

Aside from price and execution APIs, another notable type of API in the cryptoasset markets are news APIs. News APIs feed the latest articles from sites like Cryptonews.com to a user’s platform in real-time.

There are also crypto APIs that facilitate market data, blockchain analytics, and token sale information.

Who uses crypto APIs?

Professional traders, hedge funds, cryptocurrency wallets, and data analytics platforms are among the most frequent users of crypto APIs.

Professional traders, hedge funds, and prop trading desks use APIs to execute automated trading strategies using trading bots. In algorithmic trading, both price and execution APIs are used. Price APIs allow trading software to model the past performance of a specific trading strategy using historical prices. Additionally, real-time pricing, as well as live execution APIs, are required for trading bots to operate in a fully-automated fashion.

Cryptocurrency wallets use real-time price APIs to show wallet users how much their digital asset holdings are currently worth in fiat currency. In most cases, wallets use a single price API from a reputable exchange.

Data analytics platforms that provide insight into the cryptoasset markets also use price and market data and, occasionally also, blockchain data APIs that feed into their platforms.

What to look for in an API?

Not all APIs are created equal. There are a number of factors to take into consideration before making the decision to integrate a specific API into your software, website, or trading bot.

First and foremost, an API’s data quality is of utmost importance. If the data an API provides, such as the price of bitcoin, is inaccurate, then the API will not be able to fulfill its duty.

The next thing to look for is that an API has low latency. Low latency refers to being able to deliver a high number of data messages with as little delay as possible. This is especially important for live execution APIs used by trading bots and high-frequency traders. Trading algorithms need to execute trades in real-time to ensure that they can operate successfully. In this scenario, a high-quality API can make the difference between executing profitable or unprofitable trades.

An API should also have a high or ideally unlimited level of calls. That means that the API user can make as many data requests as he or she requires.

Detailed API documentation is another aspect that should be taken into consideration when choosing an API. It will make the integration of the API into your software easier.

APIs and bot trading

Cryptocurrency bot trading has been on the rise over the last few years. Arbitrage bots, market-making bots, and technical analysis bots are “battling it out” on digital asset exchanges to generate the most profit possible for their operators. Crypto APIs play an integral role in that.

Price and execution APIs are the bread and butter of algorithmic trading. Crypto APIs have, therefore, been playing a pivotal role in the development of the crypto asset trading ecosystem. And, as the crypto market continues to mature, we can expect to see more API trading on bitcoin exchanges.

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