How Does Order Book Depth Impact the Success of Triangular Arbitrage?

Order book depth refers to the volume of buy and sell orders at different price levels. A deep order book, meaning high liquidity, is crucial for successful triangular arbitrage.

It allows arbitrageurs to execute large trades without causing significant price slippage. In a market with a thin order book, a large arbitrage trade can move the price against the trader, eroding or eliminating the profit before the three-trade sequence is complete.