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Crypto Arbitrage

Exploring the so-called ‘3-way arbitrage'trading strategy on Binance crypto currencies. Is this hype or could it be profitable?

What a concept! Make 3 trades in rapid succession when you find favorable exchange rates and voila! Profits in seconds and no connection with volatility.

How does this work?

Let's break this down using a ridiculously simple bartering scenario. Once we exchange one crypto-currency for another we are bartering or exchanging fungible assets.

Let's image these scenario:

  • Jane has 10 almonds
  • Will has pineapples and will trade each for 5 almonds
  • Christine has mangoes and will trade evenly for a pineapple
  • Xavier has almonds and will trade 6 for every single mango

So in this arbitrage opportunity, Jane trades 10 almonds for 2 pineapples, and these for 2 mangoes which in turn she trades for 12 almonds.

She has profited 2 almonds through these trades as a result of anomalies in the exchanges.

Above is a similar type of 3-way arbitrage with crypto arbitrage currencies.

What at first is apparently simple often is generally not.

Several essential what to see in the real-world of crypto markets:

  • price discrepancies between markets are anomalies, they must be sniffed out deliberately
  • once an arbitrage opportunity is situated it must be executed quickly or you will be left by having an incomplete execution (1 or 2 trades in place of 3)
  • the trades must certanly be done as a Limit-Order at the specific price identified in the arbitrage exploration (we'll try this out in a bit)
  • transaction fees will start to erode the profitability of these trades (we'll examine this directly in our code)

There's another key thing to understand about arbitrage trades but we'll enter into that once we've covered more details academy of arbitrage review: is trevor chapman legit?

Broken triangles?

The data above proves a trace, because another line didn't show a similar arbitrage for sale in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it might have executed but then the trade for AR might not have. We can't make sure with only this information.

It's possible any particular one second later the USDT / BTC exchange was no longer offered at the limit price: BTC / USDT: 0.00002973 however now that individuals have the BTC perhaps the remainder 2 trades remain possible. We simply cannot know this once we initiate the arbitrage exchange.

Each Binance REST API call takes at least 200ms, in accordance with where we are located (where your code is running). Binance servers are available in Japan. A control order (a ‘Taker') isn't instantaneous, it usually takes another 500ms+ to return so our total time for 3 limit orders could realistically extend out to ~2secs. Needless to say there could be some inability to execute a get a grip on order as specified for the reason why that instant so you'll find so many ways an arbitrage execution may fail to complete.

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