Exploring the so-called ‘3-way arbitrage'trading strategy on Binance crypto currencies. Is this hype or can 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 experience of volatility.
How does this work?
Let's break this down utilizing 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 because of anomalies in the exchanges.
Above is a similar kind of 3-way arbitrage with crypto arbitrage currencies.
What at first seems to be simple often is frequently not.
A couple of essential things to see 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 found it must be executed quickly or you will undoubtedly be left by having an incomplete execution (1 or 2 trades rather than 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 these trades (we'll examine this directly inside our code)
There's another key thing to understand about arbitrage trades but we'll enter into that once we've covered more details…
Broken triangles?
The info above proves a hint, because another line didn't show a similar 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 certain with only this information.
It's possible any particular one second later the USDT / BTC exchange was no more offered at the limit price: BTC / USDT: 0.00002973 however now that people have the BTC perhaps the rest of the 2 trades continue being possible. We simply cannot know this once we initiate the arbitrage exchange.
Each Binance REST API call takes at least 200ms, based on where we are located (where your code is running). Binance servers are available in Japan. A control order (a ‘Taker') is not instantaneous, it usually takes another 500ms+ to come back so our total time for 3 limit orders could realistically extend out to ~2secs. Naturally there may be some inability to execute a get a handle on order as specified for the main reason that instant so you'll find so many ways an arbitrage execution may neglect to complete read full article here.
