In our “Cryptocurrency Trading 101” series, we are exploring the basic principles of cryptocurrency trading. A few recent topics we discussed include the following.
To take full advantage of trading in the cryptocurrency market, we must understand the importance of exchange APIs. In the following sections, we will cover the basics of APIs and how to leverage these tools to take full advantage of the crypto market.
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A set of functions and procedures allowing the creation of applications that access the features or data of an operating system, application, or other service.
- Oxford Languages
What are exchange APIs?
Exchange APIs are a way for traders to access their exchange account programmatically so they can trade without logging into the exchange.
With APIs, traders can use 3rd party services to execute trades, manage their portfolio, collect data on their account, and implement complex strategies.
Every exchange has unique APIs that allow traders to manage their account in different ways. The most common features of exchange APIs include order placement, account data collection, and market data access. Since every exchange provides different endpoints, we strongly recommend using API aggregators to connect to your different exchange accounts.
API aggregators simplify the endpoints across every exchange so the behavior and functionality is the same. That way developers and traders don’t need to build custom infrastructure for every exchange.
What are API keys?
API keys are used to authenticate users and identify what account is being accessed by the automated program.
There are two important elements included in a set of API keys; the public key and the private key. These are sometimes also referred to as the public key and secret key.
When requesting access to a traders account, the program will use the secret key to sign requests. This tells the exchange that the program has authorization to access the traders exchange account and perform the operations that are supported by the API key.
How to connect to exchange APIs
Most exchanges are similar in the way they allow traders to connect accounts to 3rd party software solutions. With a few exceptions, all exchanges allow customers to generate API keys and plug those keys into automated software.
When connecting your account to a software program, begin by logging into your exchange account and identifying where the exchange provides access to “API Management” features. Sometimes this section is located under the security section, profile section, or account control settings on the exchange.
After you have found the section for generating API keys, go through the process to create new API keys on your exchange account. At some point in the process, the exchange will display your public and private API keys. These should be securely stored in a private location that only you can access.
Note: Most exchanges will only show you the private key one time. After the private key has been displayed one time, the exchange will never show it again.That means if you lose your private key, you will need to start the process over from scratch and create a new set of API keys.
When prompted to select the permissions for your API keys, you should select all of the options for reading data from your account. If you would also like to trade through the APIs, you should also enable the permissions for trading.
Generally, exchanges break permissions into three major categories:
Data - This permission allows the API keys to access your account data, such as account balances, historical trades, and open orders. All of these operations are read-only. That means the API keys can’t make any changes to your account.
Trading - This permission allows the API keys to execute trades on your account, place open orders, and close orders. These are considered write operations. Essentially, the program can make changes to your account.
Withdrawal - This permission allows the API keys to withdraw funds from your account. Basically, the program would be able to move your funds to another location without your approval.
Do not enable permissions for the withdrawal of your funds.
An application that has permissions to withdraw funds from your exchange account can take all of the money off of your exchange account. When someone takes your funds, this is irreversible. There is no way to get those funds returned.
Trading applications should never ask for withdrawal permissions on your API keys. If they do, we strongly recommend not using that trading service.
How to trade through exchange APIs
Once you have acquired your API keys, you now have the power to put those API keys into secure applications like Shrimpy that can help you trade through the APIs.
After logging into Shrimpy, you will immediately see the input fields to enter your API keys. These input fields are where you will enter the public and private API keys that you generated on your exchange account.
Once the keys have been linked, you can now start trading on the exchange through Shrimpy. You will no longer need to log into your exchange account, except when you need to deposit or withdraw funds.
To learn more about how to make your own crypto trading bot, we have a full guide on how to get started here:
How to Make a Crypto Trading Bot using Python