Triangular arbitrage in cryptocurrencies: how to profit from price discrepancies

For Ukrainian crypto traders, currency and crypto asset arbitrage remains one of the most attractive ways to earn profits without price prediction. In particular, triangular arbitrage allows the use of price asymmetry across different trading pairs. But is it worth diving into this grenade? Let's analyze it in detail.

Main Idea: Three Exchanges for Profit

Unlike traditional arbitrage, where trading occurs on two markets, triangular arbitrage involves three assets simultaneously. The mechanism is simple: you buy the first asset with the second, exchange it for the third, and then convert the third back into the first. If the price discrepancies remain, you will end up with more than you initially invested.

For Ukraine and other countries, this method is particularly relevant during instability in the crypto market when different exchanges set varying rates. Currency arbitrage in cryptocurrency format is essentially correcting market inefficiencies.

How it works in practice

Assuming you start with 50,000 USDT. Current prices:

• Bitcoin (BTC) – $88.28K (for your USDT)
• Ethereum (ETH) – $2.99K
• Tether (USDT) – base currency

Action plan:

1. You exchange 50,000 USDT for BTC at a single price on the BTC/USDT pair.
2. Convert the received BTC to ETH on the BTC/ETH pair ( here ETH may be cheaper than when exchanging directly for USDT/ETH)
3. You exchange ETH back to USDT on the ETH/USDT pair

If everything goes well, you will receive, say, 52,000 USDT instead of the original 50,000. The profit is 2,000 USDT. Of course, in reality, the numbers are lower due to fees, but the principle is the same.

Why it is difficult to do this manually

The crypto market moves quickly. By the time you execute your third trade, price discrepancies may disappear or even reverse to a loss. This is called slippage (slippage).

Main issues:

• Delays on exchanges during order processing
• Rapid price fluctuations
• The necessity to work without errors during three consecutive operations

That is why experienced traders use trading bots that automate this process. The bot detects discrepancies, executes three trades in milliseconds, and locks in profits. A person simply cannot keep up.

Advantages of triangular arbitrage

Guaranteed profit ( in theory ) Unlike conventional trading, you earn not on the direction of the price, but on the mathematical divergence. If a divergence exists – profit will occur.

Lower risk through diversification Instead of betting on one asset, you diversify your capital across three. This reduces vulnerability to sudden dumps of one coin.

Market liquidity improvement When many traders engage in triangular arbitrage, they trade more actively on these pairs, which increases the overall trading volume. This makes the market more stable and less volatile.

Disadvantages and Risks

Risk of slippage This is the main threat. If prices change rapidly, your third deal may end up being unprofitable instead of profitable.

Liquidity Problem If any of the three pairs have insufficient volumes, you will not be able to execute the order at the desired price or may not execute it at all.

Technical delays and inefficiency of the exchange Unreliable order processing systems can ruin the entire plan.

Competition More and more algorithmic traders are catching such opportunities earlier than humans. The profitability of such arbitrage decreases over time.

Should beginners engage in triangular arbitrage?

Short answer: no. This is not for beginners. You will need:

• Deep understanding of trading and risk management
• Capital for configuring and testing the bot
• Technical programming skills or knowledge of bot platforms
• A cool head and readiness for losses during setup

What awaits this strategy in the future?

Technologies are evolving, blockchains are becoming faster, and fees are declining. This should facilitate triangular arbitrage. However, competition is increasing exponentially. Institutional traders and funds are already using super-optimized systems to capture these opportunities.

For Ukrainian and, in general, individual traders, opportunities will become increasingly limited unless you have exclusive access to the markets or specialize in small, less competitive pairs.

Conclusion

Triangular arbitrage is a real strategy for earning on crypto markets, but it requires serious skills, technical knowledge, and constant adaptation. Currency and crypto asset arbitrage remains attractive but is no longer a gold mine due to numerous hindrances: fees, delays, competition, and liquidity risks.

If you are a beginner, focus on understanding the basic trading strategies. Once you gain experience and have enough capital, then consider automated triangular arbitrage as one of the tools in your strategy portfolio.