Algorithmic trading has become one of the most popular trading techniques in the modern age. As computing power continues to influence affairs in the global financial markets, companies and investors have been forced to adapt. And in doing so, this has created a new market, which startups seek to disrupt.
A Quick Rundown of the Evolution of Algorithmic Trading
While algorithmic trading is associated with the information age. Its concept stretches far much back past the emergence of computers. Algorithmic trading employs historical data to determine the direction of future prices, whether it is in the stock market, the commodities market or the more popular forex trading.
In the early financial markets, traders used to look at major economic events of the past and how they affected the market. From this point, they could make an educated estimate of how a currency pair would behave following a given economic event. Some of these principles are still in force today, with the only difference being that now, there are computing systems created to track past economic events and try to extrapolate how similar events would affect the forex market.
With the internet and computers seemingly taking over, the financial markets have become more dynamic to the point that applying these concepts traditionally would be almost ineffective. As such, traders have been forced to embrace automated trading systems to do the work for them because they can react to certain shifts in market activity quicker and more accurately than a trader would do manually.
Since the early 2000s, trading systems, earlier popularly known as expert advisers, have been very popular in the world of automated trading. These are basically trading systems that utilize historical data to predict shifts in the financial market that can create profitable opportunities. Some traders use them to generate trading ideas, which they can then execute manually while others choose to automate the entire process.
Today, for automated trading using a trading system to be possible, traders need to use an API gateway and a dedicated server so that they avoid costly downtimes that can affect a local server.
An Application Programming Interface (API) is one of the most important services for algorithmic traders. An API plays a crucial role in keeping algorithmic trading systems up and connected to trading venues. Over the years, it has played a great deal in implementing algorithmic strategies in the Forex market, and presently APIs are very popular among cryptocurrency traders.
Trading APIs and trading bots are extremely essential to progressive traders, and in the next part of the article, we highlight some of the benefits of using an API to trade, especially when employing algorithmic trading systems.
The Benefits of Using Trading APIs
Round the Clock Trading: An algorithmic API-based trading system allows round the clock trading regardless of whether the trader is connected to a computer. This is very effective especially when a trader uses an automated trading system to trade on his behalf. With an API trading system, traders do not need not to worry about any interruption in trading activity. The best trading systems ensure 99% up time – with no outages of power or internet. As such, API-based trading systems provide an ideal environment for automated trading.
Cost Effective: Ensuring uptime may seem to be the main benefit of a API-based algorithmic trading system. Using an API is almost a requirement for any trader who uses the algorithms for trading regularly. Utilising a quality trading software can be a form of cost cutting since it can also be used for other purposes, such as semantic news analysis and trade signal generation.
Effective storage and accessibility of information: Professional corporate-grade API trading systems tend to store huge amounts of data (Big Data) on local servers, which they can use to generate trading strategies across a large set of assets. In contrast, it naturally becomes a hassle to use Big Data on desktop or mobile platforms, open multiple charts, insert key levels or indicators on all charts and then conduct technical analysis. Additionally, by using an API, this ensures that even when a trader is not close to their computer, they can still maintain trading sessions and effectively place market orders on a trading platform with stop levels or even using technical indicators for automated technical analysis.
In summary, automated tradingvia APIs continues to become popular. However, for those not eager to reap the benefits of an API and an algorithmic trading system, they can always start trading via a web or mobile platform or use a type of managed account services. In today’s markets, some trading platforms offer retail investors the opportunity to trade using a managed account or connect to a copytrading service to put trading activity on autopilot.