Crypto Arbitrage

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

Just what a concept! Make 3 trades in rapid succession when you discover favorable exchange rates and voila! Profits in seconds and no contact with volatility.

How does this work?

Let's break this down using a ridiculously simple bartering scenario. Once we exchange one crypto-currency for another we're 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 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 because of anomalies in the exchanges.

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

What in the beginning is apparently simple often is frequently not.

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

• price discrepancies between markets are anomalies, they need to be sniffed out deliberately
• once an arbitrage opportunity is available it must be executed quickly or you'll be left having an incomplete execution (1 or 2 trades rather than 3)
• the trades must 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 these trades (we'll examine this directly within our code)

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

Broken triangles?

The data above proves a hint, because another line didn't show exactly the same arbitrage available in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it will have executed but then a trade for AR might not have. We cannot be sure with only this information.

It's possible this one second later the USDT / BTC exchange was no longer 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 once we initiate the arbitrage exchange.

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