To many consumers, the stock market is intimidatingly hard to understand. And even experienced investors find themselves having difficulty finalizing a decision, either because they don’t have access to all the information they need or because the decision relies on too many variables.
Stock APIs attempt to make the process easier by providing a more accurate, real-time stream of information to apps and other platforms. But how exactly do stock APIs work? And why should you care?
The Basics of Stock APIs
A stock API is a programming interface designed to provide a stream of real-time stock market data to a given source. For example, many existing brokerage platforms rely on a stock API to provide them with real-time information that their investors can use to make buying and selling decisions. This stream of information includes both real-time and historical prices, as well as details for indexes, individual stocks, and more.
Stock APIs attempt to take something complicated (stock-related information) and parse it in a way that’s both readable to consumer-facing tools and accurate enough to provide the basis for trading decisions.
Why Do Stock APIs Matter?
For most people, stock APIs matter in two different situations:
Creating a new tool. First, if you’re a developer and you’re creating any kind of tool that relies on stock market data, you’ll likely need the help of a stock market API. For example, you might be creating an interactive dashboard that allows your users to visualize stock market data in real time. You might be creating a trading algorithm that executes buying and selling decisions based on in-the-moment fluctuations. Whatever the case, you’ll need reliable data fed to your system on a constant basis.
Using an existing tool. You’ll also want to consider the integrity of a stock API if you’re using a new tool for the first time. You might be trading on a brokerage platform or visualizing new stock market data on some online platform, or you might be enlisting the help of a trading algorithm partner. In any case, you’ll want to conduct some due diligence, and determine where this tool is getting their data. Are they using a stock API? And if so, is it reliable?
What Makes a Stock API Reliable?
If all stock APIs are reporting on information related to the stock market, they should all be equally reliable, right?
Unfortunately, this isn’t necessarily the case. Some developers may take shortcuts or deviate from norms, which could ultimately compromise the integrity of the data stream.
If you’re evaluating a stock API for reliability, you’ll want to consider things like:
Data source selection. Where is this stock API getting its core data? Occasionally, you’ll see an algorithm that simply scrapes data from public sites. While this may be acceptable for some applications, it’s completely unreliable for reporting stock market prices—and it may even be illegal.
Adjustments for historical prices. Hastily coded stock APIs often contain small mistakes that can distort your perception of price fluctuations. For example, it’s important to adjust historical prices to provide a relative viewpoint for given stocks. Corporate actions can retroactively affect the closing price of a stock, so APIs need to adjust for this to provide the “true” close price of a stock; for example, if a company issues a 2:1 stock split, the price will practically be cut in half. This is an important move in some cases, but if you don’t adjust for the split, it can make it seem like the stock plummeted in price unexpectedly.
Currency consistency. If a stock API is reporting on markets in other countries, is it reporting figures in the native currency or in USD? Most U.S. functions prefer to see things reported in USD, but the discrepancy can cause problems.
Exchange vs. aggregation. Some stock APIs focus on pulling data from a specific exchange, which is actually advantageous if you’re exclusively trading on one exchange. But if you’re looking for big-picture data, it’s important that your stock API aggregates data from multiple exchanges. In any case, you should know what kind of data your stock API is providing.
APIs can be a security vulnerability, since they’re an interaction point through which cybercriminals can gain access. If you’re using a stock API for your application, you’ll want to be thorough to ensure there isn’t an entry point.
Stock APIs continue to make it easier for investors to gather information and make intelligent stock trading decisions, and they’re only going to become more advanced in the future. If you’re selecting a stock API for your next application, or if you’re reviewing new stock-related tools to use, do your due diligence so you can ensure the reliability of your data.
Larry Alton is a professional blogger, writer, and researcher who contributes to a number of reputable online media outlets and news sources. A graduate of Iowa State University, I’m now a full-time freelance writer and business consultant.