What Is Triangular Arbitrage Trading?

This type of arbitrage is when a trader notices a price discrepancy between three different cryptocurrencies and exchanges them for one another in a kind of loop.

The idea behind triangular arbitrage comes from trying to take advantage of a cross-currency price difference (like BTT/ICR). For example, you could buy ICR_b with your BTT, then buy ICRt with your ICRb, and finally sell ICR_t back to BTT. If the relative value between BTT and ICR doesn’t match the value each of those currencies has with ICR, an arbitrage opportunity exists.

Risks associated with arbitrage trading

While arbitrage trading is considered relatively low-risk, that doesn’t mean it’s zero. Without risk, there’d be no reward, and arbitrage trading is certainly no exception.

The biggest risk associated with arbitrage trading is execution risk. This happens when the spread between prices closes before you’re able to finalize the trade, resulting in zero or negative returns. This could be due to slippage, slow execution, abnormally high transaction costs, a sudden spike in volatility, etc.

Last updated