WebSocket Explained: A Complete Guide

Introduction

Even though exchanges do provide price data for assets, a professional trader needs precisely accurate information to every millisecond. High frequency traders make multiple trades every day. Their entry and exit points need to be highly targeted lest they miss their profit or incur unwanted loss. For this purpose, two-way communication protocols are employed, and WebSocket is one of them.

What is WebSocket?

WebSocket is a protocol that allows two-way communication over a single Transmission Control Protocol (TCP) connection. Traditional methods use one-time connection that breaks once the intended information is delivered. WebSocket stays active unless either the client or server opts to close the connection.

A WebSocket stream lets you open many channels within one stream. These channels are called logical channels. For example, you may use one channel for monitoring latest price and the other to analyze trading data. These streams remain active as long as you do close them manually.

How WebSocket Works

When you want to use WebSocket, you open your browser and initiate a handshake and upgrade request. You send a request to upgrade your HTTP connection to WebSocket. As soon as the server responds, you switch to WebSocket. In the whole process, there are certain events, of which this handshake and upgrade option is the first one. The Open event commences when your request for the upgradation is accepted by the server. It shows that the two-way communication between the client and the server can start.

The next event is the message event. When a message is sent by the client, data is transmitted and WebSocket connection enters the message event.

Close event occurs when the connection is closed manually, or it terminates due to an internet connection problem. When it happens, the connection has to be re-established from scratch. You need to go through the handshake and upgrade process again. There is no “resume” option available.

In addition to the above-mentioned events, error event can also happen. This is obviously a failure in connection. Error may result due to many reasons, primarily a mistake in command or an incapable internet connection to start with.

WebSocket Stream Vs WebSocket API

Notable centralized exchanges offer two varieties of WebSocket Protocol. You can either use a stream or an API.

WebSocket Stream is the simpler of the two options. Consequently, it gives limited results too. You can retrieve live prices or trades via this channel. To set it up on your computer, you need to have Python installed. Then, by running specific codes, you can use the stream. Every WebSocket Stream has an @ symbol before the stream name. This makes the stream distinct from the API data. You must keep in mind that WebSocket Stream provides you only the market data. You must resort to WebSocket API to access the user data in addition to the market data.

On the other hand, WebSocket API is more powerful and wide-ranging as far as data retrieval and delivery are concerned. However, there are limits on how many commands you can send to the API server. Many exchanges put strict caps on the usage rate. Also, @ symbol used in WebSocket Stream name is not found in API endpoints.

Multiplexing Vs Multi-Connection

If you have delved into the world of blockchain and cryptocurrency trading to the extent of using protocols like WebSocket, you might also want to access several layers of data for several assets simultaneously. For this purpose, you can use multiplexing or multi-connection.

Multiplexing means you establish one connection and subscribe to many streams within the connection. It has already been mentioned that you can run many logical channels within one connection. Besides, exchanges allocate a generous limit to how many streams you can open. For example, Binance lets you run 1024 of them at once. Multiplexing is economical in power and resource consumption. It does not strain your CPU and memory.

Multi-Connection is different as it involves establishing different connections for different purposes. You need to carry out handshake, upgradation and on/Message event separately. This can be quite oppressive for your resources, but it has the advantage that even if one connection malfunctions, the other may work. Limit is not a problem for common users as exchanges allow up to 300 connections every five minutes for one IP address.

Why Use the Protocols?

You might wonder why you should get involved in such technical things when you can easily access data from the exchanges directly. The answer lies in the levels of accuracy and latency. Normal applications use HTTP, which need to be asked again and again if there is any change in prices. This can lead to the wastage of bandwidth as well as slowing down your trades. For example, even if you put a spot order to be fulfilled on the current market price, you might have noticed aberrations. This is because HTTP is less accurate and slower than WebSocket protocol.

WebSocket Protocol fetches dead accurate and latest prices and trading data. It provides you the price at which the last spot trade on an exchange was made. Moreover, once a connection is established, it automatically lets you know if there is any change in the area you have selected.

A real-life analogy can be used to explain the matter. You go to a restaurant and place an order. You call the waiter to confirm whether your order is ready, and he replies that there is still some delay. You call him repeatedly to get the same answer. This is what happens on HTTP connections.

When you have enough sources to approach the chef directly, you will get the live updates as to when he is cooking, getting things ready to be served, etc. This approach frees you from frustrating inquiries from the waiter. This is an example of WebSocket Protocol which lets you know exactly when there is in update.

Conclusion

Precise market data collection is the ultimate goal of a successful crypto trader. WebSocket Stream and API serve you by accessing the latest market and user data. Stream option is limited but easy to carry out. API protocol provides you with more data but has certain limits imposed by the exchanges. Multiplexing and multi-connections provide you variety that you can employ depending on your hardware and software resources.