Crypto Arbitrage

Exploring the so-called ‘3-way arbitrage'trading strategy on Binance crypto currencies. Is this hype or could it be profitable?

Just what a concept! Make 3 trades in rapid succession when you will find favorable exchange rates and voila! Profits in seconds and no experience of volatility.

How does this work?

Let's break this down utilizing a ridiculously simple bartering scenario. Once we exchange one crypto-currency for another we are bartering or exchanging fungible assets.

Let's image these scenario:

• Jane has 10 almonds
• Will has pineapples and will trade each for 5 almonds
• Christine has mangoes and will trade evenly for a pineapple
• Xavier has almonds and will trade 6 for every single mango

So in this arbitrage opportunity, Jane trades 10 almonds for 2 pineapples, and these for 2 mangoes which then she trades for 12 almonds.

She has profited 2 almonds through these trades as a result of anomalies in the exchanges.

Above is the same kind of 3-way arbitrage with crypto currencies.

What in the beginning seems to be simple often is often not.

A couple of important things to see here in the real-world of crypto markets:

• price discrepancies between markets are anomalies, they have to be sniffed out deliberately
• once an arbitrage opportunity is located it must be executed quickly or you'll be left having an incomplete execution (1 or 2 trades as opposed to 3)
• the trades should be done as a Limit-Order at the particular price identified in the arbitrage exploration (we'll try this out in a bit)
• transaction fees will begin to erode the profitability of the trades (we'll examine this directly within our code)

There's another key thing to comprehend about arbitrage trades but we'll get into that once we've covered more details https://www.scamrisk.com/crypto-arbitrage/…

Broken triangles?

The information above proves an idea, because the following line did not show the same arbitrage available in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it might have executed but then the trade for AR might not have. We can't be sure with only this information.

It's possible this one second later the USDT / BTC exchange was no further offered by the limit price: BTC / USDT: 0.00002973 nevertheless now that people have the BTC perhaps the remaining 2 trades are still possible. We simply cannot know this when we initiate the arbitrage exchange.

Each Binance REST API call takes no less than 200ms, depending on where we are located (where your code is running). Binance servers are situated in Japan. A limit order (a ‘Taker') isn't instantaneous, it could take another 500ms+ to come back so our total time for 3 limit orders could realistically extend out to ~2secs. Needless to say there might be some inability to execute a control order as specified in that instant so there are many ways an arbitrage execution may don't complete.