Using Alpaca in Algo Trading: Everything You Should Know

The traditional approach to trading often involves constant market monitoring, emotional decision-making, and the challenges of timing the market perfectly. This can be overwhelming, even for the most seasoned traders. Enter algorithmic trading.

Also known as automated or algo trading, algorithmic trading uses defined computer program calculations and operations to execute trades. Its strategies examine timing, volatility, and other metrics to determine when to place trades based on instructions in the dedicated algorithmic code. You can find various algorithmic trading platforms on the market, including application programming interface (API) services such as Alpaca trading software.

The Alpaca API lets you view market data, place crypto and equity orders, and build trading algorithms from scratch. Let’s explore the Alpaca trade API, including what it is, its potential benefits and safety features, and how to get started with it.   

What is the Alpaca trading API?

Founded in 2015 by Yoshi Yokokawa and Hitoshi Harada, Alpaca began as a technology company building database solutions for visual and time-series market data. 

Today, Alpaca markets itself primarily as an API trading platform for individuals and fintech businesses. Alpaca’s brokerage services fall under Alpaca Securities LLC––an SEC-registered broker and Financial Industry Regulatory Authority (FINRA) member––while Alpaca Crypto LLC handles all cryptocurrency transactions that use the Alpaca API. 

Alpaca’s features and services offered include:

• Web and sandbox API environments 

• Commission-free stock trading

• Access to real-time market data from CBOE, Nasdaq, and NYSE

• Advanced trading strategies, including margin and short-selling

• Paper trading simulation and backtesting 

• Community platforms to connect with other traders

• Integrations with charting and trading apps like TradingView, Zapier, and Composer 

How does Alpaca work?

Nearly everything that Alpaca offers flows through its API. APIs enable two software applications––client and server––to communicate with each other. Developers rely on API documentation to structure client requests and server responses in ways the applications can understand, facilitating accurate communication. 

For its architecture, Alpaca’s API mainly relies on the representational state transfer (REST) style. Here, the client (Alpaca) sends requests to the server (another trading application like Composer) as data. The server application then performs functions and sends its plain output data back to Alpaca. 

In addition to REST, Alpaca uses WebSocket and Server-Sent Events API, which excels at handling asynchronous events, such as order execution and cash settlement. 

Alpaca provides open-source software development kits (SDKs) in several languages, including Python, NET/C#, Node, and Go. Alternatively, you can use a community member-created wrapper in languages like C++, Java, Ruby, and Rust. With the Alpaca API, you can automate trading and investing, build your own trading apps, and integrate trading services into your business. 

(Looking to upgrade your trading experience? Sign up for Composer’s free 14-day trial, and let our built-in AI chatbot develop trading strategies for you.)   

Benefits of using the Alpaca Trading API

Alpaca primarily caters to product owners and developers who build trading apps or offer brokerage services, but individual equity and crypto traders can also access its services. 

Here are a few significant benefits the Alpaca trading API provides:

Functional API and charting tools

Alpaca’s API provides various tools to improve the overall trading experience. You can use its system to build stock trading bots, trading dashboards, or apps for your clients. It offers web and mobile versions, allowing you to manage your account at home or on the go. 

Although Alpaca’s API doesn’t possess backtesting capabilities, you can still backtest strategies via integration with Backtrader, an open-source backtesting library that uses the Python framework. 

Other powerful integrations offered by Alpaca include advanced charting tools that use TradingView’s technology, enabling you to view real-time market data and technical indicators and trade directly from your TradingView chart. 

Low fees

Unlike traditional securities brokers, Alpaca doesn’t charge commissions on exchange-traded funds (ETFs) or stock trading. This leads to significant savings, especially since automated trading strategies frequently execute numerous small transactions. However, you can still incur commissions on equity trades depending on the third-party platform you connect with using Alpaca’s API. 

If you want to borrow on margin, Alpaca offers margin lending at a competitive 8.5% interest rate. It doesn’t charge inactivity fees and offers fee-free withdrawals (excludes wires and ACAT out transfers).

Excellent educational resources

While API trading sounds complex, Alpaca makes its platform easy to use. Its website features various educational resources, including articles and videos on developer content, guidelines, and broker interviews. Whether you want use cases, code examples, or detailed guides, Alpaca has the necessary resources to start investing. 

The Alpaca Forum provides you with a space to get answers to frequently asked questions and to share ideas with fellow Alpaca community members. Outside Alpaca’s website, you can connect with community members on Slack, Twitter, Facebook, and LinkedIn. You can also sign up for the Alpaca newsletter to stay current on market research and the latest Alpaca API updates.

Is Alpaca safe?

To protect your personal and financial information, Alpaca adheres to ISO 27001:2013, an international information security standard published by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). Its infrastructure uses the Google Cloud Platform, which contains built-in risk management best practices, guidelines, and security protocols. 

Before logging in to the Alpaca API, you must provide an API and secret keys. The API key tells Alpaca who you are, while your secret key proves your identity. Put simply, the API key and secret key function as a username and password that secure your account and allow you to connect to the Alpaca API. 

Since Alpaca Securities LLC is a FINRA member, you can check its background on FINRA’s BrokerCheck website. Alternatively, it’s also a Securities Investor Protection Corporation (SIPC) member, which means it qualifies for SIPC insurance covering each account at Alpaca for up to $500,000 if the brokerage fails. However, crypto trading accounts don’t receive SIPC protection.

How to get started using the Alpaca API with Composer

Getting started with algorithmic trading is now more accessible than ever. Below are four steps to follow:

1. Create your account: Navigate to Alpaca’s website, and open a paper trading or live account. 

2. Retrieve your API keys: After creating your account, log in to the Alpaca platform to view your API and security keys. 

3. Install the client SDK: Installing Alpaca’s Python library makes it easier to connect to the API. 

4. Integrate your favorite applications: Start integrating your favorite applications to use indicators, charts, and backtesting within the Alpaca API.

If you want to leverage automated trading but find Alpaca’s API intimidating, consider choosing Composer with Alpaca. With Composer, you can create stock trading bots without coding. The Composer platform features AI-generated trading strategies, built-in backtesting functionality, and real-time portfolio metrics. Composer’s visual no-code strategy builder makes creating and managing use cases easy, offering everyone, from beginners to advanced traders, opportunities to test and optimize trading strategies. 

Like Alpaca, Composer is a member of FINRA and SIPC, granting you $500,000 of coverage per account.

Get trading with Composer

Let Composer simplify your strategy creation process. Check out Composer and build your symphonies with the help of our built-in AI bot. All you need to do is share instructions and let the magic begin.

Head to composer.trade, and see what the platform can do for you. Sign up for our free 14-day trial today.