Exploring the so-called ‘3-way arbitrage'trading strategy on Binance crypto currencies. Is this hype or could it be profitable?
Exactly 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 employing 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 the identical type of 3-way arbitrage with crypto arbitrage currencies.
What at first is apparently simple often is generally not.
A couple of 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 found it must be executed quickly or you will soon be left by 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 these trades (we'll examine this directly inside our code)
There's another key thing to learn about arbitrage trades but we'll enter into that once we've covered more details ggmoneyonline…
Broken triangles?
The data above proves a trace, because another line did not show the identical arbitrage available in 17:00:30 therefore it was gone.Had we initiated a trade for BTC it may have executed but then the 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 more offered at the limit price: BTC / USDT: 0.00002973 however now that individuals have the BTC perhaps the remainder 2 trades remain possible. We just cannot know this when we initiate the arbitrage exchange.
Each Binance REST API call takes at the least 200ms, based on where we are located (where your code is running). Binance servers can be found in Japan. A control order (a ‘Taker') isn't instantaneous, it might take another 500ms+ to go back so our total time for 3 limit orders could realistically extend out to ~2secs. Needless to say there might 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 don't complete.
