Just like in normal trading, where traders buy and sell cryptocurrency assets for profit, Triangular Arbitrage is another trading strategy considered a low-risk strategy.
Binance, being the biggest exchange by volume, records a large number of transactions every minute, and this causes some discrepancy in the pricing of crypto assets on the exchange.
There are many ways in which crypto arbitrage trading can be implemented. We have exchange arbitrage, triangular arbitrage, p2p arbitrage and defi arbitrage, but in this post I am going to cover Binance triangular arbitrage trading.
If you want to know about exchange arbitrage and DeFi arbitrage, you can read the full guide here.
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What is Binance triangular arbitrage trading?
Binance triangular arbitrage trading is the buying and selling of cryptocurrency assets within the Binance exchange when a price discrepancy is noticed between two or more crypto pairs in order to make profits. Typically, these crypto pairs are made up of three or more different coins that are exchanged against each other in a loop.
Binance Triangular Arbitrage Techniques:
The Binance exchange is flexible enough for any savvy trader to adopt different techniques in triangular arbitrage trading.
Here are three techniques you can use to take advantage of Binance triangular arbitrage opportunities.
Performing Binance Triangular Arbitrage Manually.
On the Binance exchange platform, you can notice an undervalued or overvalued coin between two crypto pairs containing 3 different coins, and these pairs can exchange against each other for profit on the spot market and p2p market.
Here is an example of Binance triangular arbitrage trading.
Let’s say I noticed an undervalued coin between Doge’s coin, USDT, and Shiba Inu coins in Binance exchange. I can profit by using my USDT to buy Doge coins, then using the Doge to buy Shiba Inus, and then selling the Shiba Inus back to USDT.
At the end, the amount of USDT I have must be greater than what I had at the start for such a trade to be termed profitable.
Speed is very important in triangular arbitrage trading. This is because trading opportunities are usually due to price discrepancy in cryptocurrency asset, and this discrepancy doesn’t take longer time to normalize, so before venturing into this trading strategy, you must make sure that you have solid understanding of order placement in exchange.
Performing Binance Triangular Arbitrage using bots.
It is very difficult to spot Binance triangular arbitrage opportunities, and even when spotted, it usually doesn’t take a long time for this discrepency in the price of crypto assets to normalize. For this reason, many programmers have developed crypto arbitrage bots that can help spot this kind of arbitrage opportunity.
These arbitrage bots use some algorithm to spot when there is an undervalued or overvalued coin on an exchange and trade it immediately.
There are many arbitrage bots available right now, and each arbitrage bot has some crypto exchanges that it supports. We have Pionex, 3commas, Cryptohopper, Bitsgap, Trality and others. Some of these arbitrage bots offer a free service, while others need subscription fees. Please note that among these bot listed above, it is only Pionex and Trality and Bitsgap that support Binance exchange.
For better profitability using these bots, users must be able to customize them to spot and trade those arbitrage opportunities.
Risk Involved In Binance Triangular Arbitrage.
- It is usually hard to spot arbitrage opportunities.
- Slippage.
- It usually takes 3 or more transactions.
- Security of Fund
- Fast transaction is needed.