Triangular arbitrage in crypto: my experience hunting for market imperfections

I will start by saying that triangular arbitrage is a damn interesting thing for those who love to find holes in the system. I have been chasing these opportunities for a long time and, to be honest, most of the time it feels like hunting for ghosts.

The essence of the triangle: looking for market failures

Triangular arbitrage works with three cryptocurrencies, creating something like a closed loop. Instead of trading simple pairs, you make three consecutive exchanges, returning to the original coin. When the prices between them are out of balance, an opportunity arises to make some money.

For example, I had a case with BTC, ETH, and USDT. I noticed a discrepancy, quickly deposited 50 thousand in USDT to buy bitcoin, then exchanged that bitcoin for ether, and ether back to USDT. In the end, I got 52 thousand. Two units of profit literally out of thin air! But this only works if you act lightning-fast.

Why it is harder than it seems

It annoys me when triangular arbitrage is presented as something simple. There are a lot of pitfalls here:

1. Slippage kills all profit. While you are making the third trade, the first two may already become unprofitable due to market movement.

2. Timing issue. On some platforms, the execution of orders is so slow that you just can't close the triangle in time.

3. Liquidity often lets you down. You think you've found a gold mine, but the trading volume is so low that your transaction will move the price on its own and eliminate the opportunity for arbitrage.

Of course, many clever people use bots for this. But even with bots, it's not a printing press, as many think. The market is becoming more efficient, and finding a good opportunity is getting more difficult.

What will this give you

If you manage to catch a triangle, the main advantage is risk diversification. I am not tied to the movement of one coin in one direction. Theoretically, you can even trade in a falling market.

I also like that such strategies help the market. Your activities essentially equalize prices between different assets, making the market fairer. Although, of course, I do this not out of nobility, but for profit.

Where everything is headed

Every day it gets harder. Tens of thousands of algorithms scan the market, looking for the same opportunities. Five years ago, I could find up to a dozen good triangles in a day; now I'm happy if I manage to catch two or three in a week.

Competition will only grow. Large players with powerful servers and direct connections to trading platforms have an advantage of milliseconds, but even for them, the window of opportunity is narrowing.

Triangular arbitrage is not for beginners. If you don't have enough experience and understanding of trading risks, it's better to start with something simpler. But if you're as stubborn as I am and love mathematical puzzles with real money – welcome to the world of multidimensional arbitrage.