JP Buntinx | The Merkle
On the road toward making $2,000 a month with cryptocurrency, one has to look well beyond traditional opportunities first and foremost. In the case of arbitrage trading, there are quite a few different options to explore. The triangular arbitrage opportunity can be extremely lucrative, although there are some caveats to take into account as well.
The Triangular Concept Explained
Unlike the direct arbitrage trading method, triangular arbitraging is a bit different. It will always involve exploring three different markets and up to three different exchanges. For example, one buys coin A on Exchange X, sends it to exchange Y for conversion to coin B, and sells that coin B on Exchange Z for even more profit. Both “steps” of the arbitrage process can yield individual gains which do not necessarily have to be equal in size.
Is it Profitable?
The main reason why speculators explore triangular opportunities is for the financial gain. Compared to direct arbitrage, where the profit is usually limited to 3% maximum, triangular trading is very different. More often than not, one can net profits starting at 3% and going up all the way to 100% on very rare occasions. That makes it a more lucrative option, although such high profits can never be achieved without some risks along the way as well.
Even though these triangular arbitrage gains are incredibly appealing, one also has to keep in mind these high-profile opportunities do not come around every single day. In most cases, a profit of 5% can be achieved, which is still pretty interesting. That also means a 1 BTC trade with triangular arbitrage can easily net $100 or $200 a day. Exploring additional opportunities will result in further gains, assuming one has the necessary funds across multiple exchanges.
The Potential Downsides
As is always the case when making money is the ultimate goal, there are some potential drawbacks to take into account. First of all, one needs a verified account on multiple exchanges to make this worthwhile. In the case of triangular arbitrage, there are fiat currencies involved, especially when converting currency B on exchange Z. That can be a bit of a problem for some, depending on which fiat pair is involved and where the user is from.
Even so, there are plenty of opportunities which will yield profits in BTC value as well, which makes for easy profits regardless. Another thing to take into account is how users need to rely on three different exchanges per trade, and moving money off those exchanges can be a bit challenging in terms of waiting times. For bigger exchanges such as Bitstamp, Kraken, and Binance, that is usually not a big problem. Exmo, CEX, HitBTC, and KuCoin can be a bit different in this regard.
The final caveat is dealing with exchange liquidity. The conversion between currency A and currency B can be a lot more time-consuming than one may think. For example, converting BTCPT to ETC on Cryptopia involves selling BCPT for Bitcoin and using that BTC balance to buy ETC. If there isn’t sufficient liquidity, completing either order can take anywhere from minutes to hours. By that time, a lot of potential profit could be wiped out.
Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency.
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