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.
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