Steemit Crypto Academy Contest / S13W2 - Triangular arbitrage .
Hello my cordial greetings to the Steemian family
How are you doing, i am good and feeling honored while taking part in another contest the topic is Steemit Crypto Academy Contest / S13W2 - Triangular arbitrage. Let's explore the topic.
Explain in your own words, What triangular arbitration?
The method adopted by traders to gain profit with the price differences in different underlying markets is called arbitrage. It takes place mostly at forex and also in foreign currency markets.
Triangular arbitrage refers to a process that involves the conversion of one currency into another, again converting to the next currency, and finally converting back to the first or original currency this process occurs in a period of a few seconds.
The process is carried out to take profit from the market when there are bit differences or mismatch in the exchange rate of the currency. Although it's not commonly take place there are rare chances in the market.
The most common form of trading in the market is observed between two currencies as one is buying and the other is selling the currency depending on the market situation when it is favorable to the traders.
In triangular arbitraging the trader has to carry out three simultaneous trades; in which he is buying one currency while selling another, and at the same time he is using a third currency for the the base currency.
How does it may happen?
Obviously in the case of arbitrage opportunity may arise only when there is a mismatch or difference between the exchange rate and the quoted cross-exchange rate. Moreover, This can be observed only when a certain currency is seen as overvalued against one currency while at the same time, there is an undervalue for the other currency.
The most commonly triangular arbitraging combinations are seen as EUR/USD or USD/GBP, and EUR/GBP in any combination form.
How to do triangular arbitrage trading?
Aa i have mentioned above the triangle arbitrage try to get advantage of price mismatch between three different assets such as cryptocurrencies in the market.
It can be simplified as for example a trader has exchanged one cryptocurrency for few seconds, the seconds for a third currency, and then third currency for the first one. The whole process is repeated till the price differences is in currencies.
Although the execution is done carefully in triangular arbitrage as traders must identify the price differences and the trading different asset pairs quickly, as the volatile prices in market so the proper risk management must keep in notice.
Since the crypto market highly volatility in term of prices the executetion in triangular arbitrage trades done rapidly.
For example when a trader observed that mismatch in prices among three different assets such as Bitcoin (BTC), Ether (ETH), and Tether (USDT).
Now how can we tell if there’s an arbitrage opportunity is there in trading?
The trader will buy $50,000 worth of BTC with the help of USDT. Now he will use BTC to buy ETH. Next he will use the ETH to buy USDT again. This will happened only when the relative value of the USDT remained at the end is significant mismatch from the start capital $50,000, so it can be noticed there is an arbitrage opportunity takes place successfully.
What is the difference between arbitration and triangular arbitration?
The arbitrage is executed is takes place between any two currency while triangular arbitration is takes place in three different currencies.
The arbitrage can be executed by the consecutive exchange of one currency into another as there is discrepancy in the quoted price for the given currencies.
While in case of triangular arbitrage takes place only when the exchange rate of a currency doesn't have match the cross-exchange rate.
The process of arbitrage is the simultaneous purchasing and selling of the same asset in different markets. This process is used to gain profit from a differences in price.
While in case of triangular arbitrage occured when the exchange of a currency takes place in three currency pairs in short time span for gain profit.
Do an example of triangular arbitration, having 10,000 Steem as the first cryptocurrency. You can choose the remaining 2 cryptocurrencies.
The first step is the choice of the crypto coins and I have selected two more coins ETH and USDT for this Triangular Arbitrage. Consider the following trades are possible
- 1 STEEM = 0.35 USDT
- 1 USDT = 0.0005 ETH
- 1 ETH = 9000 STEEM
So, we will start the exchanging of these crypto coins in the way that we will make USDT from STEEM and then convert those USDT to ETH and finally we will convert the ETH back to STEEM. This will happen in the following steps.
10,000 STEEM => 3500 USDT
3500 USDT => 1.75 ETH
1.75 ETH => 15,750 STEEM
Consider that, all transactions cost us 3 percent as per the total initial amount. So,
Total Profit = Total Amount of STEEM obtained - (Initial Amount of STEEM + Fees Deducted )
Total Profit = 15,750 - (10,000 + 472.5)
Total Profit = 15,750 - 10,475.5
Total Profit = 5274.5 STEEM
Conclusion
The Triangular Arbitrage can be used for profit gain but only expert can trade very well as the process of trade on triangular arbitrage is of shoet time span.
Thank you for reading my post.
I would like to invite my dear friends @ashkhan, @m-fdo and @suboohi to take part in the challenge.
Thank you, friend!
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Saludos cordiales drhira.
El arbitraje triangular funciona, lo has podido demostrar con tu intercambio STEEM-ETH-USDT, has obtenido una ganancia sustancial, por lo tanto es una método comprobado siempre y cuando cumplamos con todo correctamente.
Buena participación, suerte.
Thank you for comment and reading my post, yeah i have tried to explain it and make it easy to understand the given topic.
Hello brother.
You have made great effort in this post and You have provided a great example in explaining these topics.
I liked the image of the paper in which you have made effort to explain Triangular Arbitrage. I really appreciate your efforts.
Best of luck for the contest.
Thank you so much for valuable feedback on my post. It encouraged me to produce moee quality contents.
Blessings
Apki itni acchi post dekhne mujhe bahut jyada Khushi jismein aapane bahut jyada mein sab chijon ko proper tarike se byan Kiya hai aur main aapki sari baton se ittefaq karta hun. Aapane bilkul theek bayan kiya hai ki triangular arbitrage mein pahle ek currency ko dusri currency mein convert karte hain aur FIR dusri currency ko teesri currency mein convert karte hain aur FIR teesri currency ko again first currency mein convert karte Hain
Agar Main or bat Karun to aapane bahut acchi tarike se Ham sabke samne Apne knowledge ko pesh kiya hai ki kis Tarah triangular arbitrage kam karta hai aur ISI ke sath aapane hamen ek practical example bhi di hai jo ki samajhne ke liye bahut hi aasan hai main aapko aapki shandar mehnat per good luck kahta hun
Thank you for kind feedback and of course together we can learn a lot and clear the knowledge more, passive we can improve our knowledge about a topic which is not clear to us.
Blessing
Welcome and by teamwork when we all work like a team and help each other in understanding different new things then it would be very good for increase in our knowledge
Hola Dr hira 😊
Tu explicacion estuvo muy acertada, me encanto el detalle de que hiciste la explicacion manuscrita, se ve que estabas muy involucrado en la tarea e investigaste lo suficiente para desarrollar una buena explicacion.
Creo que quien aplique esto va a tener una buena recompensa. Asi que si estas dispuesto a hacerlo me avisas como te va.
Saludos
nice post
Nice piece of writing. Arbitrage serves as a trading method where traders leverage price disparities in various markets to generate profits. Specifically, triangular arbitrage involves a quick succession of currency conversions to capitalize on rate differences. Although it's a rare occurrence, this approach entails executing three simultaneous trades, involving buying one currency, selling another, and using a third currency as the base. It's essential to note that arbitrage opportunities arise when there's a noticeable disparity between exchange rates and quoted cross-exchange rates, signifying overvaluation or undervaluation of specific currencies. This technique can be applied to cryptocurrency trading, where traders swiftly exchange between different digital assets, necessitating careful execution and risk management due to the market's high volatility. Traders must act swiftly to identify price differences and execute trades promptly, as the volatile market conditions require a keen eye for risk management. Love your post
Assalam o alaikum @drhira sister Monitoring price differentials and swiftly capitalizing on arbitrage opportunities in the dynamic crypto market can yield profitable results for proactive traders.best wishes for uh