Why Is Triangular Arbitrage Considered Less Risky than Cross-Exchange Arbitrage?
Triangular arbitrage occurs on a single exchange, eliminating the significant risks associated with moving funds between different exchanges. This removes counterparty risk from multiple exchanges and the execution risk from slow fund transfers.
The execution is typically atomic, meaning all three trades happen almost simultaneously or not at all. This minimizes the risk of the opportunity vanishing during the transaction process.
Glossar
Arbitrage
Exploitation ⎊ Arbitrage, within cryptocurrency, options, and derivatives, represents the simultaneous purchase and sale of an asset in different markets to capitalize on transient price discrepancies, effectively a risk-free profit opportunity.
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.