Application programming interfaces (APIs) have become increasingly popular among traders because they can expand trading opportunities. Traders can use APIs to get access to market data in real-time. Traders who want to develop their own trading strategy can use API protocols to collect market data from different sources in one place. Traders who want to automate their trading process can integrate API in the trading bot that will execute trades based on a certain strategy or algorithm.
Although API trading may provide a lot of opportunities for traders, many retail investors still trade manually. The reason could be that some crypto enthusiasts want to stick to a simple interface and just buy bitcoin with a credit card, while others only heard about API trading and don’t know the specifics of using it. Let’s dive into the pros and cons of API trading to see why traders use this approach.
Advantages of API Trading
Eliminates emotions from the equation
Many traders may experience challenges with following a strategy and preserving discipline while trading. Discipline is often lost due to emotional factors such as fear of missing out and fear of taking a loss, especially during volatile market periods. Emotional trading may lead to hasty decisions and deviation from the established strategy.
Automated trading through the integration of API helps ensure discipline and eliminate emotional factors. The trading bot will not hesitate during the trade since orders are executed automatically when trading rules are met. In addition, automated trading helps traders avoid human errors like entering the wrong order specifications, and helps those who are afraid to make a final decision.
Provides higher order entry speed
With API, traders can significantly increase their order entry speed since computers can sell and buy cryptocurrency much faster than human intelligence can. In some cases, getting in and out of a trade a few seconds earlier can make a big difference in a trade outcome, especially if the trader has a high volume or markets are volatile.
In addition, using API can make order management easier and help traders increase overall volume. Most platforms offer traders lower trading fees for each trade if they have a relatively high trading volume.
Backtesting
Backtesting refers to the process by which a trader applies trading rules to historical data to determine the viability of a trading strategy or idea. Traders can receive historical data from the crypto trading & exchange platform via API, and then test whether a certain trading plan works given past results, or not. After backtesting, traders can evaluate the trading strategy expectancy — i.e. the average amount a trader expects to win or lose per unit of risk. Careful backtesting may improve trading rules that traders want to set with trading bots, or help re-evaluate trading strategies.
Helps with diversification
Traders who trade assets manually usually pay attention to one or several markets. But with API, traders can improve diversification by using different trading strategies for certain markets. Moreover, traders can sell and buy Ethereum, Ripple, Litecoin, and many other assets at the same time, spreading the risk over various assets and re-balancing the crypto portfolio.
API also helps traders collect information about numerous markets from multiple trading platforms to spot potential trading opportunities. For example, arbitrage trading can be much easier with API. Traders may place orders across several exchanges simultaneously to benefit from price changes. Using arbitrage trading and other advanced trading techniques allows traders to find new trading options that would be impossible to execute manually.
Disadvantages of API Trading
Monitoring
API trading allows you to automate your trades but it doesn’t mean that automated trading systems do not require monitoring. In case of connectivity issues or system quirks, trading systems may experience anomaly trades.
However, if the system is monitored and you use a durable and stable API, such events can be quickly identified or not appear at all.
Dependency on strong internet connection
If you connect the API with the trading system running on your own computer instead of the crypto exchange’s server, then you need a reliable power source. A failed internet connection can trigger unexpected trading results, or orders might not be sent to the market. Using a server may help you avoid such situations.
Over-optimization
In most cases, over-optimization refers to scenarios when traders “overuse” data received by API for building trading plans. For example, some trading platforms offer optimization tools that allow traders to add a range of specified inputs and check “which one works better.” Adding too many combinations and scenarios may create trading plans that look great on paper, but perform poorly on live markets.
Over-optimisation is usually achieved by traders who are chasing “perfect” trading plans. Traders sometimes incorrectly assume that a trading plan shouldn’t have any flaws and should perform only profitable trades during backtesting. Over-optimisation shows that receiving a lot of data may sometimes lead to analysis paralysis, especially if traders don’t know how to use the data for trading.
Proprietary software can be expensive and complicated
Trading platforms usually offer API for free. Without API, it would be difficult for crypto exchanges to offer customers advanced trading services. However, if users want to automate their trades they either use their own trading system, or implement API in proprietary software. Third-party software may be expensive or oriented toward tech-savvy traders, making API trading less affordable for traders.
Benefits of Using CEX.IO API
Several API solutions
CEX.IO offers two crypto trading API solutions, allowing both retail traders and institutions to benefit from automated trading.
- REST API — allows traders to get quick access to CEX.IO market data and set up an automated trading system.
- WebSocket API — allows traders to benefit from advanced trading functionality and receive three times more market data per request than the REST API.
Each API solution provides a different spectrum of opportunities, allowing traders to find what suits them most for their needs and purposes. You can connect REST and WS APIs to your trading system via the CEX.IO website. Find out more about setting up CEX.IO API in our guide.
High request limit and stable connectivity
CEX.IO offers 600 requests every 10 minutes by default for every user. This is a standard limit offered by many big and medium-sized crypto exchanges. However, if you have an established trading system and long trading history on CEX.IO, we can raise these limits, allowing you to expand your opportunities for API trading.
CEX.IO API also offers you to take advantage of durable and stable server-based connectivity, minimizing dependency on strong internet connections and constant monitoring.
Quick integration in third-party and custom software
You can use CEX.IO API for free to connect your trading system with our trading platform. CEX.IO API allows you to import data to third-party applications like trading bots or custom applications. Integrating CEX.IO API in third-party software requires little or no technical knowledge, allowing you to easily set up automated trading systems and develop trading strategies.
CEX.IO has integrated with multiple third-party application providers, including Shrimpy.io, HaasOnline, Alpha Bot, Coinigy, Trailingcrypto, and Cryptoview. It makes API trading with CEX.IO even more accessible.
Experienced traders who can develop trading systems from scratch may copy and paste relevant algorithms directly to the terminal, or adapt algorithms for their trading systems.
Access to advanced trading strategies
CEX.IO API provides a plethora of market data and indicators, helping traders with backtesting and building their own trading plans. This information can be integrated into third-party software and used in combination with other market data provided by other sources. You can find more information about API trading strategies in our guide.
Conclusion
Using API may significantly change a trading style, especially if traders haven’t used API before. However, API can create numerous new opportunities for traders, and can be useful for both new crypto enthusiasts and experienced traders. Beginners may benefit from API, curbing emotions, and following a plan. Experienced traders may use API to collect more market information for deeper analysis, and build a trading plan that can be implemented in automated trading systems. Those who recently discovered API trading could try to mix automated and manual strategies on CEX.IO to see what produces better results.
Disclaimer: Information provided by CEX.IO is not intended to be, nor should it be construed as financial, tax or legal advice. The risk of loss in trading or holding digital assets can be substantial. You should carefully consider whether interacting with, holding, or trading digital assets is suitable for you in light of the risk involved and your financial condition. You should take into consideration your level of experience and seek independent advice if necessary regarding your specific circumstances. CEX.IO is not engaged in the offer, sale, or trading of securities. Please refer to the Terms of Use for more details.