Triangular Arbitrage with Coin Pair Trading

triangular arbitrage

We can either hard-code to a limited set of combinations or allow the code to consider all the possible combinations available in the exchange. The below code snippet implements the second approach of identifying all the possible arbitrage combinations. There are different approaches of buying/selling the 3 assets to achieve triangular arbitrage. This is not an offer, solicitation of an offer, or advice to buy or sell cryptocurrencies, or open a cryptocurrency account in any jurisdiction where Alpaca Crypto is not registered or licensed, as applicable. Please note that this article is for informational purposes only.

  • Triangular arbitrage is a complex trading strategy exploiting price discrepancies between three assets.
  • This function will be called in our arbitrage condition checker function and will place trades when the condition appears.
  • However, there are other risks involved in triangular arbitrage, which are highlighted in the section below.
  • Arbitrage is mainly done when one asset can be bought and sold in different geographically located marketplaces.
  • Other factors must be considered before embarking on triangular arbitrage.

They help you avoid black-box market-making services available in the market. Their algorithmic strategies running 24/7 will support the liquidity health of your token. Arbitrage is considered as a lower risk trading method as compared to the traditional trading where the timing of the buy/sell is crucial. Also in arbitrage, the profit/loss triangular arbitrage is known immediately as all the required trades are executed simultaneously. Arbitrage takes advantage of the difference in the asset prices in the market. Arbitrage has been traditionally done in the forex market for many years but given the volatility in the crypto market, it can applied to the crypto market as well.

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The function is placed entirely in the separate fnChangeThree.mqh file. Thus, we do not have to introduce additional entry fields for the first, second and third symbols. This is impossible because we trade all possible triangles rather than a single one. It checks whether there are any limitations on working with a symbol. The first necessary function is to form triangles from the Market Watch. Opening and closing triangles are saved to a log file allowing us to check the correctness of actions and restore history.

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Then we convert our ETH into BTC by purchasing ETHBTC (BUY_ETHBTC in code). Our main function will update our prices dictionary before calling this function, so we fetch those values here and store them in the variables below. ETH, BTC, and ETHBTC just refer to the most recent values of ETH/USD, BTC/USD, and ETH/BTC.

Understanding Arbitrage

Remember that you are competing with several other trading bots out there. In case you want to experiment with real trades then first ensure that you have built a robust trading algorithm before venturing into it to avoid losses. Given the need for quick quotes and trade orders, a strategy like this can really only be implemented with API trading services – where Alpaca excels. First, we create all possible triangles, place them correctly and get all the necessary data for each currency pair.

triangular arbitrage

Opportunities for arbitrage can exist within the same exchange or across exchanges. To use Triangular Arbitrage, we must get the latest prices for each of these currency pairs. We then find the conversion rates, buy the cheaper currency, convert it into the expensive currency, and then finally sell the expensive currency. This is largely because one cannot generally take traditional investing concepts and apply them successfully. There are a large number of unclear factors that can influence a cryptocurrency’s price. LOS 8 (b) Identify a triangular arbitrage opportunity and calculate the profit, given the bid-offer quotations for three currencies.


As the market continues to move rapidly and automatically, trades occur so rapidly that arbitrage opportunities disappear seconds after appearing. So, programmers will try to fine-tune algorithms to identify opportunities and act on them before they disappear. The automated trading platform has streamlined the way forex trading is executed. The platform makes use of an algorithm in which trades run automatically when specific criteria are met.

In the cryptocurrency market, prices of assets fluctuate every second. In the process of swapping from Bitcoin to Ether to USDT, price margins may get sealed up within the twinkling of an eye. Hence, if done manually, triangular arbitrage must be executed speedily. However, the best way to perform triangular arbitrage involves using an automated trading system.

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Frequently, the transactions employ margin trading to amplify the returns. It is possible that high transaction costs may erase gains from the price discrepancies. Triangular arbitrage identifies price differences for trading opportunities, so it might be possible to find three cryptocurrencies that allow you to use the strategy. Triangular arbitrage is often considered risk-free because it involves exploiting temporary market inefficiencies without exposure to currency risk.

However, there are other risks to consider, such as execution risk, technological risks, and market risks, which can impact profitability. This strategy is primarily used in the foreign exchange (forex) market, although it can also be applied to other financial markets, such as cryptocurrencies. They offer a powerful, AI-powered crypto trading bot to help you save time, trade 24/7, and automate your trading. It facilitates fast automated trading, and portfolio management for Bitcoin, Ethereum, Litecoin, and 100+ other cryptocurrencies on the world’s top crypto exchanges. However, if bots were unavailable, this can become challenging because a trade needs to find an opportunity, calculate the risks and expectations, and execute the transaction before the market prices change. Prices move quickly, and a split-second can ruin the whole arbitrage trade opportunity.

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