In the current technology ecosystem, APIs have come to hold a critically important role and the future promises an even greater status for them going forward. But why are APIs so important, what are some of the ways trading firms utilize an API to support their operations, and what should you look for when evaluating an API?

First Things First: What Is An API?

API is short for “application programming interface” and it can be thought of as the centralized and standardized method for communicating with software. Just as the screen on a phone makes it easier for a user to utilize applications, an API makes it easier for a developer to access and utilize software, thereby simplifying the task of programming. Importantly, the functions of the software are abstracted down to objects and actions, making it much simpler and faster for a programmer to work with software.  APIs are integral in the rapid integration and adoption of the various software components we use every day.

APIs have become ubiquitous in products all around us and in ways that we may not expect. For example, we view a car as a mode of transportation that consists of a motor, wheels, seats, and a steering wheel but, viewed another way, it’s also a large collection of different software components that handle everything from engine performance to assessing road conditions that are seamlessly integrated into one automotive system via an API. And the future promises even more software integration as 90% of all cars are expected to be “connected” by 2020 with features like roadside assistance, crash notification, rear park assist, parking space availability, and more. These features will be integrated via an API to provide the user with the seamless driving experience.  Amazon’s Alexa Voice Service (AVS) is another great example of how APIs have changed our everyday lives.  Software developers integrate with AVS to allow users to control applications from any Alexa-enabled devices like Echo.  Today you can tell your Echo device to stream music, control your smart-home devices, look up the weather and check your email all because of Amazon’s API.  We truly live in an API world.

Examples of API Utilization in Trading

The trading ecosystem is made up of various technologies, managed by different parties, all coming together to facilitate the act of trading.  All the various exchanges, market data providers, and clearing firms have their own APIs.  Trading systems like Rival play a critical role by integrating with the various APIs in the ecosystem to provide users with a seamless trading experience.  Trading systems also provide users with an API if users want to integrate their own application or logic into the ecosystem.

There are two critical ways trading firms utilize APIs: as a method to normalize access to exchanges and to integrate proprietary trading methods and applications with out-of-the-box functionality.

For exchange connectivity it’s beneficial to use a normalized API, where market data subscriptions and order execution are handled the same way across all exchanges. A normalized API allows users to write a trading strategy once and easily deploy it across multiple exchanges and insulates the firm from having to deal with the constant upgrades the exchanges make to their own APIs.  Trading firms can save a significant amount of time and effort by working with a trading system that has a normalized API.

As best-of-breed technology has become readily available and the cost of maintaining proprietary systems has increased, more firms are migrating to commercial trading systems and leveraging the system’s API to maintain their proprietary trading methods.

Some examples of how firms utilize trading system APIs are:

  • Incorporating market data and order management into a proprietary front-end system
  • Adding enhanced inventory and risk based adjustments to automated trading functionality
  • Integrating proprietary pricing models, volatility surfaces, and underlying price calculations into options trading systems

What to Look for In An API

When it comes to selecting an API for your trading operation, there are three key factors to consider: bang for your buck, ease of integration, and performance.

  • Bang for your buck: There is work you need to do upfront to integrate with an API, so you want to pick one that will give you the most functionality possible. Don’t get caught short with an API that serves your current needs but doesn’t have a full feature set that will accommodate future changes and growth to your business.
  • Ease of Integration: You certainly don’t want to have to spend as much time integrating with an API as it would take to just build it yourself. Make sure the API is well documented with sample code and usable examples, as well as a simulation environment for testing. It’s also important to ensure that the API is mature, as significant changes to the API could cause you to spend considerable time and effort to stay up to date.
  • Performance: Make sure the performance of the API is in line with your current and future expectation. Flashy new features are great, but you will have wasted your time integrating if they don’t meet your performance expectations. It also pays in the long run to make sure the API is stable. Issues with functionality and stability will cause you to spend all your time troubleshooting problems.

The View from Rival Systems

At Rival, we provide our users with the best technology available through our ultra-low latency normalized API, with global exchange connectivity and the ability to easily integrate proprietary trading logic with our best-of-breed functionality.  All supported by a team of experts with extensive documentation, sample code, and a simulation environment.