Triangular arbitrage basics
The cross currency arbitrage, better known as triangular or a three-point arbitrage is a process that includes taking advantage of opportunities across different exchanges. This arbitrage technique aims to profit off of price differences between three cryptocurrencies.
For example, you can buy Litecoin with Bitcoin, then buy Ethereum with that Litecoin and again, buy Bitcoin with Ethereum. In that case, your final purpose would be to gain some amount of Bitcoin.
To make a real profit from crypto trading, there has to be market imperfections. Actually, what we know as crypto arbitrage opportunity is the possible momentary presence of information blackout.
Triangular arbitrage is not a common opportunity, and it is only available to those who use platforms to automate the arbitrage process.
What should we know about triangular arbitrage?
An important thing to know before you begin using triangular arbitrage is that sometimes, the cost could exceed the profit margin, and you must decide if you are willing to take the risk. Furthermore, the whole process needs to be executed as fast as possible and in large volumes, to make a real profit.
It is definitely not an easy process, but if it's carried correctly, it is a profit making venture.
Triangular arbitrage process
To execute a triangular arbitrage, you must follow few steps:
Identifying an opportunity - an arbitrage opportunity exists if the exchange rate is different from the cross currency exchange rate.
Executing first stage - at this step, you trade your base currency for the other
Executing the second stage - at this step, you must quickly trade the currency for the third one
Last stage - here, you must convert the third currency back into the base currency.
If everything is done correctly, you must end up with a profit from the executed arbitrage.
How to make profit?
To make the best out of a triangular arbitrage opportunity, you will need some knowledge and understanding. Of course, there are different bots and tools that can automate the whole process, but knowledge is essential if you want to be ahead of competition.
To be honest, you can pass the whole trading process without taking any risks and still gain profits. Anyway, if you are not fast enough there is a great chance you lose, because it is a matter of seconds before the arbitrage opportunity disappears.
Fortunately, there are dedicated bots and special software solutions such as CriptoArbi, to do the work for you.
Such tools will help you get the job done quickly and effortlessly and will provide you with real-time arbitrage opportunities. Of course, this service comes with a price, but it will save lots of time and hard work.
Triangular arbitrage risks
While triangular arbitrage is considered a risk-less trading opportunity, where you can make profit from price differences, there are a few risks involved.
The main thing about triangular crypto arbitrage is that you need to invest large volumes, in order to make a profit. This is because usually the price difference between the cryptocurrencies is narrow.
Another thing to keep in mind is that these opportunities disappear as fast as they occur, and they can literally last a second or less. That’s why you need an automated arbitrage platform to execute the whole process. Otherwise, if you decide to take time in researching and doing the whole work by yourself and there is a correction in the exchange rates, which is quite likely, you could suffer a great loss.
Triangular cryptocurrency arbitrage is a rare opportunity and if you want to make the best out of it, you must find the best software that will help you find and take advantage of the price differences at the moment.
Platforms, like CriptoArbi, will make it much easier for you to find and seize the rare opportunity before it disappears. Choose your subscription plan, and we will do the hard work for you.