# Application Programming Interface (API): Definition and Examples

## What Is an Application Programming Interface (API)?

An application programming interface (API) is a set of programming codes that queries data, parse responses, and sends instructions between one software platform and another. APIs are used extensively in providing data services across a range of fields and contexts.

APIs have become increasingly popular tools, with the likes of Meta (formerly Facebook), Amazon, SalesForce, and many more establishing their own APIs that allow companies to access some of their services without having to fully migrate into their ecosystem. This new paradigm has led to the rise of what some experts call the "API economy," a model that enhances a company’s [bottom line](https://www.investopedia.com/terms/b/bottomline.asp) by improving interoperability and thus creating new systems from existing ones.

In the domain of financial markets and trading, one may use an API to establish a connection between a set of automated trading [algorithms](https://www.investopedia.com/terms/a/algorithm.asp) and the trader's preferred trading broker platform for the purpose of obtaining real-time quotes and pricing data or to place electronic trades.

### Key Takeaways

*   An application programming interface (API) establishes an online connection between a data provider and an end-user.
*   For financial markets, APIs interface trading algorithms or models and an exchange's and/or broker's platform.
*   An API is essential to implementing an automated trading strategy.
*   More brokers are making their platforms available through an API.

## Understanding Application Programming Interfaces (APIs)

APIs have become increasingly popular with the rise of automated [trading systems](https://www.investopedia.com/terms/p/programtrading.asp). In the past, [retail traders](https://www.investopedia.com/articles/active-trading/030515/what-difference-between-institutional-traders-and-retail-traders.asp) were forced to [screen](https://www.investopedia.com/terms/s/stockscreener.asp) for opportunities in one application and separately place trades with their broker. Many retail brokers now provide APIs that enable traders to directly connect their screening software with the [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) to share real-time prices and place orders. Traders can even develop their own applications using programming languages like Python and execute trades using a broker's API.

Two types of traders use broker APIs:

*   **Third-Party Applications** - Many traders use third-party applications that require access to broker APIs for pricing data and placing trades. For example, MetaTrader is one of the most popular [foreign exchange (forex)](https://www.investopedia.com/terms/f/forex.asp) trading applications and requires API access to secure real-time pricing and place trades.
*   **Developer Applications** - A growing number of traders develop their own automated trading systems, using programming languages like Python, and require a way to access pricing data and place trades.

Despite the apparent benefits of APIs, there are many risks to consider. Most APIs are provided to a broker's customers free of charge, but there are some cases where traders may incur an extra fee. It's important to understand these fees before using the API.

Traders should also be aware of any API limitations, including the potential for downtime, which could significantly affect trading results.

## Where to Find APIs for Traders

The most popular brokers supporting API access in the traditional stock and [futures markets](https://www.investopedia.com/terms/f/futuresmarket.asp) include TradeStation, TDAmeritrade, and InteractiveBrokers, but many smaller brokers have expanded access over time. APIs are more common among [forex brokers](https://www.investopedia.com/terms/forex/c/currency-trading-forex-brokers.asp) where third-party applications and trading systems—[such as MetaTrader](https://www.investopedia.com/the-best-metatrader-brokers-8765896)—have been commonly used for many years.

Many brokers provide online documentation for their APIs. Developers can find out exactly how to authenticate with the API, what data is available for consumption, how to place orders through the API, and other technical details. It's essential to be familiar with these details before choosing a broker when looking for specific functionality.

Some brokers also provide libraries in various languages to make interaction with their API easier. For example, a broker may offer a Python library that provides a set of functions, or methods, for placing a trade rather than having to write your own functions to do so. This can help accelerate the development of trading systems and make them less costly to develop.