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🔺 Triangular Arbitrage: Three-Way Trades

Exploit price inefficiencies between three trading pairs

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🔺 Triangular Arbitrage

Triangular arbitrage exploits price discrepancies between three currency pairs on the same exchange. It's faster than cross-exchange arbitrage because there's no transfer time.

How It Works

ETHBTCUSDT① ETH/BTC② BTC/USDT③ USDT/ETH
Step 1: ETH → BTC
Sell your ETH for BTC using the ETH/BTC pair
Step 2: BTC → USDT
Sell the BTC for USDT using the BTC/USDT pair
Step 3: USDT → ETH
Buy ETH back with USDT using the USDT/ETH pair
Result: You end with more ETH than you started!

🎮 Interactive: Triangular Arbitrage Calculator

Adjust the exchange rates to find profitable triangular arbitrage opportunities:

100 ETH10,000 ETH
0.05000
1 ETH = 0.05000 BTC
40,000
1 BTC = 40,000 USDT
2,000
2,000 USDT = 1 ETH
0%2%
0.05%0.5%

Trade Execution Path

① Start Amount (ETH):1,000 ETH
② After ETH → BTC:49.90005000 BTC
1000 × 0.05 × 0.9980
③ After BTC → USDT:1,992,011.99 USDT
49.90005000 × 40,000 × 0.9980
④ Final Amount (ETH):994.0150 ETH
1,992,011.99 ÷ 2000 × 0.9980
Net Profit/Loss:-5.9850 ETH
Return on Investment:-0.599%
Arbitrage Status
❌ Not Profitable - Adjust Rates
Theoretical rate deviation: 0.0000%

The Mathematics Behind It

For triangular arbitrage to be profitable, the product of the three exchange rates must deviate from 1:

Rate₁ × Rate₂ × Rate₃ ≠ 1
If > 1:Arbitrage opportunity exists going clockwise (ETH → BTC → USDT → ETH)
If < 1:Arbitrage opportunity exists going counter-clockwise (ETH → USDT → BTC → ETH)
If = 1:No arbitrage opportunity (markets are in equilibrium)
💡 Example Calculation
ETH/BTC = 0.05 (1 ETH buys 0.05 BTC)
BTC/USDT = 40,000 (1 BTC buys 40,000 USDT)
USDT/ETH = 1/2,000 = 0.0005 (1 USDT buys 0.0005 ETH)
Product = 0.05 × 40,000 × 0.0005 = 1.0
Result: No arbitrage (rates are in equilibrium)

Advantages Over Cross-Exchange

⚡

Speed

All three trades happen on the same exchange instantly. No waiting for transfers between exchanges (which can take 10-30 minutes).

💰

Lower Costs

No withdrawal fees or network fees. You only pay trading fees (typically 0.1-0.2% per trade), making smaller profit margins viable.

📉

Reduced Price Risk

Since execution is instant, there's minimal exposure to price movements. The entire arbitrage cycle completes in seconds, not minutes.

🔄

Higher Frequency

Fast execution allows for many trades per day. Professional arbitrage bots can execute hundreds of triangular arbitrage trades daily.

Key Challenges

🎯

Smaller Profit Margins

Opportunities are typically 0.1-0.5% profit, much smaller than cross-exchange spreads. After fees and slippage, net profit might be only 0.05-0.2%.

Implication: Need large position sizes ($50,000+) to make meaningful profits
🤖

Bot Competition

Opportunities disappear in milliseconds. Hundreds of bots are constantly scanning for these inefficiencies and executing faster than humans can.

Reality: Manual trading is impossible; you MUST use automated bots
💧

Slippage on Large Orders

Large trades move prices against you. A profitable opportunity at $1,000 might become unprofitable at $100,000 due to slippage eating into margins.

Solution: Split large orders into smaller chunks, use limit orders
💡

Pro Tips for Triangular Arbitrage

  • •Focus on high-volume pairs: ETH/BTC, BTC/USDT, ETH/USDT have the tightest spreads and best liquidity
  • •Monitor during volatility: Price discrepancies are more common during market crashes or pumps
  • •Use VIP fee tiers: At 0.05% fees instead of 0.1%, your profit margin doubles
  • •Consider gas/execution costs: On DEXs, Ethereum gas fees can exceed arbitrage profits
  • •Test with small amounts first: Verify your bot logic works before deploying significant capital