Crypto Triangular Arbitrage with Fees and Pre-Funded Legs
Summary
The article describes a simple crypto triangular arbitrage method: compare the outcome of converting between three currencies in different orders, then take a route that returns more of the starting asset after trading costs. It illustrates the idea with Bitcoin, Litecoin, and Darkcoin, showing that changing supply and demand can make one conversion cycle profitable while another loses value. A bot is proposed to calculate and execute the trades quickly.
The examples are illustrative rather than empirical evidence of repeatable returns. The article accounts for transaction fees in one example and suggests holding equivalent amounts in all three currencies so the conversion legs can run simultaneously, reducing exposure to price changes while trades are in progress. It also cautions that thin liquidity can prevent a leg from filling and that prices may move before execution. The approach depends on available liquidity, accurate fee calculations, and timely fills; it provides no systematic performance testing or detailed treatment of spreads, slippage, or execution risk.
Key ideas
- Compare cyclic conversion routes to identify one that returns more of the starting currency.
- Subtract the cost of all transactions before judging whether a cycle is profitable.
- Pre-funding each leg can allow conversions to run simultaneously and reduce exposure to intervening price moves.
- Insufficient liquidity or delayed execution can erase an apparent arbitrage opportunity.
- The article offers examples but no systematic evidence that the strategy produces repeatable returns.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.