What is triangular arbitrage and how to use it?

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**TL;DR**Triangular arbitrage is a complex trading strategy that exploits price differences between three assets. The trader exchanges the first asset for the second, the second for the third, and then returns to the first. And makes a profit.## IntroductionArbitrage turns market inefficiencies into money. Beautiful. In the crypto world, different types are used: simple, international, P2P, and triangular. All of them take advantage of price differences.Most strategies operate in two markets. Triangular arbitrage is special. It uses three classes of assets.## Triangular Arbitration in the Crypto SectorThe essence is simple. You take one coin, exchange it for another, then for a third, and return to the first. You repeat this as long as there is a price difference.But success requires precision. And speed. Cryptocurrencies are too restless — prices change instantly. You have to keep up.## How Cryptocurrency Triangular Arbitrage Works### How to see the opportunityImagine: an experienced trader notices something strange between BTC, ETH, and USDT. He buys Bitcoin for $50,000, exchanges it for Ether, and then exchanges Ether for USDT. If at the end he has significantly more or less than the initial $50,000 — there it is, an opportunity!### How to use thisThe frequency of transactions determines everything. Sometimes it seems impossible to keep up.Traders use different approaches. For example, "buy-buy-sell" or "buy-sell-sell."In the first case with USDT, BTC, and ETH, you can earn about 2000 dollars. The main thing is to act quickly. Buy Bitcoin, immediately exchange it for Ether, and so on.In the second one, you buy bitcoin cheaply for USDT, sell it for a higher price for ETH, and then sell ETH even more profitably for USDT.Doing this manually? It&#39;s unrealistically difficult. That&#39;s why many use bots. Machines don&#39;t sleep.## Advantages of Triangle Arbitrage### Money out of thin airTriangular arbitrage offers more opportunities than regular trading. Smart traders earn not only from price movements but also from their discrepancies.### Less riskIn theory, of course. By trading several assets, you are not dependent on one currency. Diversification. Although triangular arbitrage has its own pitfalls.### More liquidityMore transactions mean more liquidity in the market. And good liquidity is a sign of a healthy market. You can buy and sell without significant price fluctuations.### More efficient marketThis type of arbitration helps to align prices. The market becomes more stable, and trading becomes safer.## Disadvantages of Triangular Arbitrage### Price SlippageThis is a sore spot. Slippage is the difference between the desired and the actual price of a trade. By the time you execute the last operation, the market is already different. Profit is melting away.### Time is the enemyIn an ideal world, everything works like clockwork. In reality - delays, volatility, prices fluctuate. If you miss out - you lose.### Liquidity issuesIf the market is not active enough, trades may not be executed at the desired price. This results in losses.## The Future of StrategyTechnologies are changing. Markets too. Triangular arbitrage will probably become more complex and precise.But the more people use it, the harder it is to earn. Competition is growing. Moreover, regulators are not sleeping.Only the most adaptable will survive. Sounds like evolution, right?## ConclusionTriangular arbitrage is a game for the experienced. They assess risks and devise strategies. Beginners are better off staying away. It&#39;s too dangerous for the unprepared.