Cryptocurrency trading was born from the maturity and evolution of stock exchange trading. It borrows the same concepts from stock exchanges, such as having buy/sell limits and benefiting from arbitrages. Before the golden age of the Internet, traders had to go through a lengthy process to earn their money. One had to independently look for trading opportunities, identify the trade they want to execute and then call their broker with instructions on how to proceed.
However, with the rise of the Internet, trading got a much-needed facelift. Data collection, market analysis and the executable actions all shifted to an online platform. Traders had an easier time performing market analysis as well as keeping track of their portfolios and adjusting them accordingly.
However, they still missed out on crucial trade moves because of inefficient exchanges’ nature. APIs were invented to solve this.
What Are APIs?
Application Programming Interface, or API in short, is a program that allows one application software to not only communicate, but also interact with another. They come in the form of web services, desktop tools or even mobile apps. Their sole purpose is to improve the efficacy in the interaction between a user and a remote system.
How Do They Work?
APIs act as messengers. They convey information between a remote system and the end user hence allowing executable actions. To get the gist of it, take an example of your food delivery app. When you want to order noodles or pizza, you log onto your food delivery app and run a quick price comparison of the food.
The delivery app requests for the prices of pizza from different restaurants and presents you with a summary of best prices available. From there, the app allows you to quantify how many pizzas you need, the flavor, and any extras such as a drink or toppings. Once you place the order, the app communicates your request with the internal system of the pizza restaurant you ordered from. The system dispatches a delivery man to bring your food to you and sends back a receipt. The food app is the API in this case.
APIs in Cryptocurrency Trading
Shortly after the online era beginning, traders realized better profits due to the efficiency of operating via an online system. Markets were more organized and traders could perform their analyses with ease. The online system, however, had loops that frustrated traders.
A trader would log in to one platform to compare cryptocurrency prices and perform their market analysis. They would then have to log in to a different platform to execute their trade. This two-phased operation was time-consuming and led to traders missing out on trading at the best prices and arbitrage to realize maximum profits. APIs came to streamline this.
How Do API Trading Terminals Save Your Money?
Cryptocurrency prices change with the dynamics of the market environment. This is what causes arbitrage; the difference in trading prices between one or two cryptocurrencies. Traders rely on arbitrage to buy and sell their cryptocurrency and realize profits. Arbitrage, however, changes in a matter of minutes, making it difficult to track manually and execute trades on time.
APIs perform analysis of the market in the background and present summarized information of the market prices and the arbitrages. The trader can then use such details and execute their trade directly from the API. The API communicates the execution, and the trade move is placed before prices can fluctuate again. This way, traders stand a better chance of realizing higher profits.
Cryptocurrency prices fluctuate by the minute. By the time a trader performs their analysis on one platform and trade in another, the price might have changed, bettering or worsening the trader’s chances of securing profits.
An API can be programmed to automatically execute a trade whenever certain parameters are met. Others can be set to send a push notification to the trader. He/she then decides on their course of action from the information they receive. This direct interaction creates the feel of live trading as the trader never misses an opportunity to maximize the profits.
A trader’s portfolio changes after every trade, as they either make a profit or a loss. APIs present traders with summarized details of their portfolios, which comes in handy during decision making. The information is useful as traders can make better decisions on whether to raise or lower their target profits, adjust their stop-loss parameters as well as rethinking their classic buy or sell orders. Informed decision-making saves traders from crucial mistakes that cost them money.
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