With many providers offering trading and API access for investing, it isn’t quite something more and more people consider. One thing is for sure… someone should not take it on without further research beforehand.
While manual trading keeps everything under your control, trading with APIs requires a lot of trust in the provider of the stock data API and the trading system.
We will show you how to put your stock trading on autopilot with APIs but also warn you of the dangers.
There are a few things you need to get started trading and investing on autopilot with stock market data APIs.
First, you need to find suitable software that allows you to connect to your broker and data feeds.
You can run these programs either on your local host or self-hosted in the cloud on AWS, Google Cloud or similar providers. For example, you can look at the StockGeist.ai’s Python client as an example of how to work with a Python library for APIs.
As there are countless specific projects, we won't go into detail about which project you can use for what purpose. However, there are many options, so a search on Github or Google will help you find a template project that you can adapt to your needs.
Typically, many of these projects come not only with API connections to brokers but also API connections to market data feed providers, so you have both available.
If you are not familiar with running your own open-source trading software, there are alternatives that sit in the middle between open-source projects and fully automated bot solutions.
These are mainly add-ons to popular manual trading software that require some knowledge of stock data APIs and trading software, but not much.
The main examples of software used are the following:
Ninjatrader is a well-known trading platform with powerful charting tools and portfolio-tracking features. It supports all major markets, including Forex, Futures, Stocks and Options. It offers advanced backtesting and algorithmic trading capabilities, as well as customisable strategy development tools. It also supports advanced trading signals and automated trading strategies. It is suitable for experienced traders and can be used for both discretionary and algorithmic trading.
Sierra Chart is a powerful charting and technical analysis package designed for the active trader. It supports real-time and historical data from all major exchanges, including stocks, futures and options, and foreign exchange. The package is highly configurable and includes numerous indicators for technical analysis. The charts are also interactive, allowing you to draw objects and trade automatically. It also offers a built-in back-testing engine, algorithmic options trading and integrated order management features.
MetaTrader is a popular Forex trading platform available for desktop and mobile devices. It offers advanced charting tools, trading automation, market research and customisable technical indicators. It also supports automated trading strategies and is highly customisable. It offers algorithmic trading capabilities and is suitable for both beginners and advanced traders.
Interactive Brokers is one of the most popular brokerage services, with connections to almost every type of market around the globe. Interactive Brokers has its own stock data API, and through various add-ons you can use algorithmic trading functions, their add-ons support both automated and manual trading systems and offer a range of add-ons such as risk management tools, market data, multi-lingual trading systems and more.
The platform is designed for active traders and provides access to a wide range of financial instruments.
Alternatively, you can use a provider that offers a cloud-based bot. You will need to set up your account with a broker that offers a stock data API. Once you have done this, you will need to connect your broker to your chosen bot software and set up your datafeeds.
There are many free and paid options available, but make sure you choose one that is reliable, has good customer support and you trust them to keep your API key safe and secure.
If you decide to use a cloud trading bot provider as your trading software to connect to your broker and data feeds, there are a few things you need to be aware of.
Fees can be high with cloud trading bot providers. Make sure you compare the fees charged by different providers to get the best deal - some providers offer a free trial but then charge for continued use. Make sure you read the small print so you know what you're signing up for.
It is a good idea to check if your provider only works with one or two specific brokers. If this is the case, there may be backdoor commission deals that put you at a disadvantage. You don't want to be stuck with a provider that is paid to make you lose money or overtrade.
Be wary of providers who promise high returns or show backtested bot results. Many of these backtests are biased and would never have achieved the returns claimed in real market conditions.
While it is possible to make good money with trading bots, there is no such thing as a free lunch. If a provider claims that their software will make you rich overnight, be very wary. They may not be able to make you rich overnight, but claims such as '90% win rate' should be taken with a pinch of salt.
Check the reviews and reliability of the platform. Make sure the platform is regularly updated with new features and security updates. If you do run into problems, it's important to have good customer support from your provider. Otherwise, you may not be able to resolve problems.
There are three main benefits to trading with APIs:
API-based trading means that trades can be placed automatically, without human intervention, according to a set of rules that you define in your trading software or on the bot platform. Typical rules are technical indicators such as trend following strategies, moving average crossovers and mean reversion strategies.
Such strategies are difficult to implement in manual trading, simply because timeliness is paramount.
A stock data API also eliminates the need for manual intervention, saving time and speeding up transactions.
Nobody likes to trade manually 24 hours a day, five days a week in every possible market. However, stock trading APIs give you the ability to automate your strategies in any type of market.
A stock trading API enables automatic trading without your intervention, allowing you to execute your strategies regardless of market hours and whether you are awake or asleep.
The same applies for crypto APIs.
If you choose the right volatile markets where manual trading is not possible, there are some advantages to trading with stock data APIs. For example, you won't be able to trade manually at very short intervals, such as scalping stocks in seconds.
However, you can use an API to connect your trading account directly to the markets so that you can automatically make trades when the market conditions are right. This is done by setting a few simple rules or parameters in your code that will activate trades for you.
There are dangers when it comes to using an API for stock trading in an autopilot manner:
Datafeed errors can cause serious problems when stock trading via APIs, as incorrect or inaccurate data can easily be transmitted in real time. This can lead to financial losses as automated algorithms may not be able to detect the errors quickly enough, resulting in incorrect buy and sell orders.
It is important to verify data sources and ensure data accuracy when working with stock data APIs.
APIs can go offline unexpectedly and when this happens, it can be difficult to undo the damage as orders may have already been placed and even filled. To avoid this, it is important to regularly test and monitor the API connection so that the system is aware when it is offline.
One of the biggest dangers of algorithmic trading via APIs is "overtrading". Overtrading occurs when an algorithm trades too frequently or too large, resulting in unnecessarily high commissions and churn.
When an algorithm places an order without taking into account factors such as market volatility, liquidity and trading volume, it can easily result in excessive losses that could otherwise have been avoided.
Autopilot stock trading via APIs can bring about API congestion. This can occur when the stock data API itself is overloaded with too many requests being processed. This can lead to delays in order fulfilment, incorrect trade execution and even complete failure of the API itself, resulting in significant losses for traders.
API congestion can be caused by too many trades being executed simultaneously, either by manual input or by automated trading algorithms. Too many requests to the same stock trading API can cause system latency to skyrocket, resulting in delayed responses or complete service outages. In some cases this can result in orders being missed or filled at the wrong price.
Operating complex software can also make API trading difficult. The algorithms used in autopilot stock trading APIs require a great deal of programming knowledge to use correctly, which means that inexperienced or novice users may be in over their heads when dealing with them. It's important to be aware of the complexity of the software and make sure you understand it before using it.
When using cloud software, low frequency intervals such as one second may not be available. This can mean that the data being sent is delayed by up to a second or more, significantly reducing the accuracy of the data being sent. To ensure accuracy, it's important to check the frequency of the data being sent and to use software that offers a higher level of frequency.
Security concerns can be raised, especially when it comes to sharing your API keys with a cloud-based trading bot provider.
When you share your stock data API key, you open yourself up to potentially serious security and exposure risks. Without proper safeguards in place, hackers can exploit the API key to perform malicious activities such as executing unauthorised trades, hijacking accounts or stealing funds.
Algorithmic trading platforms are used by both retail and institutional investors and have become increasingly popular as advances in technology have made it easier for traders to access and interpret large amounts of financial data.
With all the potential benefits, such as less labour-intensive trading, reduced risk and improved speed of execution, it can be tempting to jump into algorithmic trading without fully understanding the risks.
As with any investment strategy, individuals using algorithmic trading should always be cautious and practice proper risk management. It's important to understand the parameters of the algorithm, such as when it will place an order, the size of the order and the market environment in which it will operate.
To ensure the highest level of security, algorithmic trading should always be tested in a simulated environment prior to live trading. This can help identify potential problems with the algorithm and reduce the potential for loss.