How Is Triangular Arbitrage Executed, and What Are Its Primary Challenges?

Triangular arbitrage is executed by exploiting price discrepancies between three different cryptocurrencies on a single exchange. The process involves starting with one currency, trading it for a second, then trading the second for a third, and finally trading the third back to the original currency.

If the final amount is greater than the initial amount, a profit is made. The primary challenges of triangular arbitrage are the need for high-speed execution, as these opportunities are often fleeting, and the impact of trading fees, which can quickly erode profits.

Additionally, sufficient liquidity is required for all three trading pairs to avoid slippage.