Triangular arbitrage

Explore whether there are profit opportunities through triangular/cross-rate arbitrage on cryptoexchanges.

Triangular Arbitrage Definition

This type of arbitrage is a riskless profit that occurs when a quoted exchange rate does not equal the market's cross-exchange rate. It exploits an inefficiency in the market where one market is overvalued and another is undervalued.

Preliminary results

The following graph plots the expected profit in percent over time of buy_cross_sell_quote & buy_quote_sell_cross processes on the coinbase pro platform. Taker fee thresholds: Tier 1 = 0.1 %, Tier 2 = 0.2 %, Tier 3 = 0.3%

Insight:

• Ignoring fees, there are profit opportunities
• Including fee strucures, the profit opportunities are significantly reduced.
• In the observed timeframe tier 3 (0.3% fee per trade) traders were not able to profit trough triangular arbitrage

-> For the average trader triangular arbitrage is not possible, unless average 30-day trading volume is increased in order to benefit from better fee terms.

TODO:

• Add further exchanges, NEXT: Bitfinex, HitBTC
• Use websockets
• If profits are possible, implement automatic trading code
• Consider order book quantities
• API Call Rate Limits: Find way to increase API calls
• Improve cross rate computation process in order to handle exchanges with higher number of currency pairs/base currencies dynamically (thether, btc, etc)