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.
Glossar
Order Book
Depth ⎊ An order book represents a listing of buy and sell orders for a specific cryptocurrency, option contract, or derivative, displaying price and quantity at various levels.
Order Book Depth Impact
Measurement ⎊ Order Book Depth Impact quantifies the effect a trade of a specific size will have on the asset's price, calculated by analyzing the cumulative volume available at successive price levels in the order book.