Crypto Arbitrage

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

Just what a concept! Make 3 trades in rapid succession when you will find favorable exchange rates and voila! Profits in seconds and no contact with volatility.

How does this work?

Let's break this down using a ridiculously simple bartering scenario. Whenever we exchange one crypto-currency for another we're 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 the same kind of 3-way arbitrage with crypto currencies.

What initially seems to be simple often is often not.

A few essential things to see here in the real-world of crypto markets:

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

There's another key thing to comprehend about arbitrage trades but we'll get into that when we've covered more details…

Broken triangles?

The data above proves a hint, because the next line did not show the same arbitrage available in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it will have executed but then a trade for AR might not have. We can't be sure with only this information.

It's possible any particular one second later the USDT / BTC exchange was no further available at the limit price: BTC / USDT: 0.00002973 however now that people have the BTC perhaps the rest of the 2 trades are still possible. We simply cannot know this once we initiate the arbitrage exchange.

Each Binance REST API call takes at least 200ms, depending on where we're located (where your code is running). Binance servers are observed in Japan. A control order (a ‘Taker') isn't instantaneous, it may take another 500ms+ to go back so our total time for 3 limit orders could realistically extend out to ~2secs. Of course there may be some inability to execute a control order as specified for the reason that instant so there are numerous ways an arbitrage execution may neglect to complete visit link.