Without realizing, you have probably been using an API connection for one of your favorite apps, services, or digital products.
APIs have become popular in multiple industries, such as data analytics companies, comparison websites, and for professional traders.
Because of the same reason, most cryptocurrency exchanges (including AAX) offer their own APIs for traders to use.
But what is an API, how does it work, and what benefits does it offer for digital asset traders?
What Is an API?
API is short for Application Programming Interface.
Simply put, it enables interactions between two unrelated systems or solutions by allowing the two apps to exchange data in a pre-determined format (e.g., by specifying the language and syntax to use as well as the speed at which messages are transferred from one party to another).
Here’s an example for better understanding.
Suppose you want to send a package to a family member living abroad. You could choose to deliver it yourself, but it would take too much time and it would be costly.
Instead, you head down to your local postal service and ask them to deliver your package to your family member. After they’ve received the package, you will get an update via the tracking number.
How Does Work for Trading in Crypto?
APIs have long been present for the general market, allowing traders to connect external platforms to their brokerage accounts or use automated strategies via APIs.
In the past few years, many cryptocurrency exchanges have created their own APIs, allowing traders to connect to various exchanges from their own preferred platform/ interface.
While some APIs allow third-party services to pull price-related data only, others also enable users to execute trades and orders via external solutions.
The prior solution is used mostly by aggregator services (e.g., CoinMarketCap or CoinGecko) to pull and publish market data about exchanges on their platforms. Also, some cryptocurrency wallets connect to exchanges via APIs to display how much their users’ digital asset holdings are worth in fiat currency.
On the other hand, traders use APIs to create their own algorithmic models based on a digital asset’s past performance and execute the orders (either manually or automatically) based on these signals.
What Are the Benefits of Trading via API?
There are multiple benefits of using an API to trade cryptocurrency.
First, it enables professional traders to develop and execute their own (more sophisticated) strategies and models and use them to determine whether to buy or short a digital asset.
Alternatively, traders can connect an exchange with an automated trading solution where bots place trades on behalf of the user.
Also, when an exchange’s platform lacks some features, developers can use the service’s API to create their own trading software.
Factors to Consider Before Using an API for Trading
Trading via APIs can have some caveats. Therefore, it’s essential to pick the right API for trading to avoid any issues.
As you are a trader, you have to know the actual digital asset prices in real-time. For this reason, it’s crucial to choose an API with excellent data quality; otherwise, you may base your orders on incorrect prices (which can easily result in losses).
Furthermore, you’d want to keep the API’s latency as low as possible to ensure that your messages are delivered to the exchange (and vice versa) without delay.
It’s also ideal to use an API connection with high data call limits (or no limits at all). This allows you to pull all the data you need from the exchange and execute as many orders as you like.
How to Integrate an API With a Crypto Exchange?
Now let’s see how to integrate an API with a cryptocurrency exchange.
To set up a third-party software with a cryptocurrency exchange, you have to first generate an API key from your account.
At AAX, you can do this by selecting “API Management” inside your user settings.
On the next page, you will see a form that allows you to customize your API permissions. Near the top, there are boxes with “Read” and “Write” next to different data points.
If you don’t want to interact with the data you gather from AAX in the third-party app, selecting exclusively “Read” will be enough. However, to manage and execute your trades in the external app, it’s essential to tick the boxes next to both “Read” and “Write.”
Optionally, for advanced security, you can whitelist one or more IP addresses for the API (so the third-party app can use them exclusively to pull data from your AAX account).
When you are ready with the API setup, click the “Create” button to generate your API key. Add the key to the third-party software you will use for trading to establish a connection with AAX.
It’s crucial not to share your API key anywhere other than the software you intend to use with AAX. Also, we highly recommend checking the AAX API documentation.