Triangular Arbitrage: My Experience Hunting for Inefficiencies in the Cryptocurrency Market

When I first encountered triangular arbitrage, I thought I had found a gold mine. This strategy seemed like the perfect way to profit from price discrepancies between three assets without much risk. But the reality turned out to be much more complex and harsh.

Triangular arbitrage is when you make three consecutive trades between different assets, returning to the original currency with a profit. Sounds simple? Ha! Try it yourself, and you will understand why most beginners end up losing money.

How I Tried to Beat the Market

Imagine: you notice a price discrepancy between BTC, ETH, and USDT. You buy Bitcoin with your Tether, exchange it for Ether, then convert Ether back to Tether. And if in the end you have more USDT than you started with - congratulations, you’ve seized the arbitrage opportunity!

But here’s what happens in reality: while you manually execute the second trade, the price has already changed. By the third trade, the market is in a completely different place. And your "profit" evaporates faster than the morning mist.

And these "popular" trading platforms! Fees, execution delays, slippage - every little thing bites a piece out of your potential earnings. I quickly realized that manual triangular arbitrage is almost a guaranteed way to lose money.

Bots are not a panacea

Many are switching to the use of trading bots, but this is a separate headache. Good ones are expensive, cheap ones work poorly, and writing your own code requires being a programmer. And believe me, when your bot suddenly freezes during an important trade, you will experience new depths of despair.

I have seen too many traders who firmly believed that their bots would do all the work while they would just count the profits. Most of them are now selling those same bots to other naive newcomers in order to somehow offset their losses.

The Reality of Triangular Arbitrage

When trading platforms talk about "reducing risk" through triangular arbitrage, they forget to mention that:

1. Speed is crucial - most opportunities disappear in milliseconds.
2. Liquidity can suddenly disappear, and you may get stuck with an asset that you cannot sell.
3. Slippage can wipe out all profits even in automated trading.

And the most important thing is that the more people use this strategy, the fewer opportunities there are to earn. The market becomes more efficient, and your potential profit decreases.

Triangular arbitrage has turned into an arms race: whose servers are closer to the exchange, whose algorithm is faster, and who has more capital. An ordinary trader has nothing to do here unless they have serious technical advantages.

But if you still decide to dive into this world, remember: you need to be prepared for losses, constant learning, and endless optimization of strategy. And even then, success is not guaranteed.