#binance #btc #eth #BNB
Triangular arbitrage is a trading strategy that exploits price differences between three different assets – usually cryptocurrencies – on the same exchange1. The concept is simple: a trader exchanges one crypto asset for a second, the second for a third, and the third for the first to take advantage of price differences. Execution, on the other hand, is another beast in its own right. To be successful, triangular arbitrage requires identifying price differences, trading different asset pairs simultaneously, and properly managing risk. As the cryptocurrency market is volatile, prices fluctuate quickly; Traders also need to execute triangle arbitrage trades quickly.
To calculate the profitability of each triangle, you can use the following formula:
R=Q0(Q1×C1)×(Q2×C2)×(Q3×C3)−Q0
Or :
R is the profitability of the arbitrage triangle
Q0 is the initial amount you invest in the first asset
Q1 is the amount you get after converting the first asset into the second asset
Q2 is the amount you get after converting the second asset into the third asset
Q3 is the amount you get after converting the third asset into the first asset
C1 is the conversion rate between the first and second assets
C2 is the conversion rate between the second and third assets
C3 is the conversion rate between the third and first asset
For example, if you have the symbols BTCUSDT, ETHUSDT and ETHBTC, and you invest 1000 USDT, you can calculate the profitability of your arbitrage triangle as follows:
Q0=1000 USDT
C1=0.00002 BTC/USDT (the conversion rate between BTC and USDT)
Q1=Q0×C1=1000×0.00002=0.02 BTC
C2=0.03 ETH/BTC (the conversion rate between ETH and BTC)
Q2=Q1×C2=0.02×0.03=0.0006 ETH
C3=1800 USDT/ETH (the conversion rate between USDT and ETH)
Q3=Q2×C3=0.0006×1800=1.08 USDT
R=Q0Q3−Q0=10001.08−1000=−0.99892
Which means you lose 99.892%
