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 exposure to volatility.
How does this work?
Let's break this down employing a ridiculously simple bartering scenario. Once 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 mango
So in this arbitrage opportunity, Jane trades 10 almonds for 2 pineapples, and these for 2 mangoes which then she trades for 12 almonds.
She has profited 2 almonds through these trades because of anomalies in the exchanges.
Above is the exact same type of 3-way arbitrage with crypto currencies.
What initially seems to be simple often is frequently not.
A couple of important things to see here in the real-world of crypto markets:
- price discrepancies between markets are anomalies, they need to be sniffed out deliberately
- once an arbitrage opportunity is found it must be executed very quickly or you will be left having an incomplete execution (1 or 2 trades rather than 3)
- the trades must 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 quickly erode the profitability of the trades (we'll examine this directly in our code)
There's another key thing to comprehend about arbitrage trades but we'll get into that when we've covered more details https://www.scamrisk.com/crypto-arbitrage/…
Broken triangles?
The information above proves a hint, because the following line did not show the exact same arbitrage obtainable in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it might have executed but then a trade for AR may not have. We can not be sure with only this information.
It is possible this 1 second later the USDT / BTC exchange was no more offered by the limit price: BTC / USDT: 0.00002973 but now that people have the BTC perhaps the rest of the 2 trades are still possible. We just cannot know this whenever we initiate the arbitrage exchange.
Each Binance REST API call takes a minimum of 200ms, according to where we're located (where your code is running). Binance servers are found in Japan. A limit order (a ‘Taker') isn't instantaneous, it might take another 500ms+ to come back so our total time for 3 limit orders could realistically extend out to ~2secs. Obviously there may be some inability to execute a control order as specified for the reason that instant so you'll find so many ways an arbitrage execution may don't complete.
