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

Order book depth is crucial because the arbitrageur needs to execute all three trades without causing significant slippage. A shallow order book means the arbitrageur's trades will move the price quickly, reducing or eliminating the profit.

Deep order books allow for larger trade sizes. Arbitrageurs must size their trades carefully to stay within the most liquid layers of the order book to minimize slippage.