What Is Triangular Arbitrage in Cryptocurrency Markets?
Triangular arbitrage involves exploiting price discrepancies between three different cryptocurrencies on the same exchange. A trader starts with one asset, trades it for a second, then trades the second for a third, and finally trades the third back to the original asset.
If the final amount is greater than the initial amount, a profit is made. This strategy avoids the delays and fees of moving assets between exchanges but requires quick execution as these opportunities are often fleeting.
Glossar
Triangular Arbitrage
Arbitrage ⎊ Triangular arbitrage, within the context of cryptocurrency derivatives and financial markets, exploits temporary price discrepancies across three distinct markets or exchanges for the same underlying asset or related instruments.
Trading Bots
Algorithm ⎊ Trading bots are automated software programs that execute buy and sell orders for cryptocurrencies and derivatives based on predefined quantitative algorithms and market signals.
Price Discrepancies
Detection ⎊ Identifying these variances involves continuous, high-frequency comparison of asset prices, implied volatilities, or funding rates across different exchanges or derivative contracts.
Quick Execution
Latency ⎊ Quick execution, within financial markets, fundamentally concerns minimizing latency ⎊ the delay between initiating an order and its confirmation ⎊ and is paramount for capitalizing on fleeting arbitrage opportunities or reacting to rapidly evolving market conditions.
Order Book Depth
Depth ⎊ Order Book Depth refers to the quantity of outstanding buy and sell orders aggregated at various price levels away from the current market price in a derivatives exchange.