Crypto Academy Season 4 | Intermediate Level Course for Week 4 : [Cryptocurrency Triangular Arbitrage] by @reddileep

Before I start explaining, let me just drop a dictionary meaning of arbitrage.

In simple Words, arbitrage is a marketing strategy in which an individual keeping proper balance on selling and purchasing his assets in dissimilar markets to gain profit by taking benefit with different pricing of different commodities at different markets.

Trading

Trading is an economic terminology used when people trade i.e. exchanging their possessions, assets, items, etc. for another or purchasing or selling them off.

Arbitrage Trading

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Arbitrage trading can be defined as getting you a profit by buying an asset from one market or exchange and then selling it in a different market or exchange at a rate higher than the cost price. However arbitrary trading is said to be harmless trading as there’s concurrent purchase and selling involved.

2- Make your own research and define the types of Arbitrage (Define at least 3 Arbitrage types)

The word arbitrage inhibits a great number of trading ways or techniques in it. However, these trading ways are classified based on their specifications.

Types of Arbitrage:

• Convertible arbitrage

• Statistical arbitrage

• Cross currency arbitrage

• Fixed-income arbitrage

• Covered interest arbitrage

Convertible Arbitrage:

It is well-known as a market-neutral strategy an investor aims to get benefitted despite assets price going up or down by getting long and short places in convertible bonds and the underlying stock.

Statistical Arbitrage:

In this way of trading in which traders utilize mean reversion i.e., they presume that a certain asset would meet a particular price at a point. It reduces investor’s losses by collaborative investment. These trades last from seconds to few days.

Cross Currency Arbitrage:

It is also named Triangular Arbitrage or three-point arbitrage. As the name suggests this trade revolves between three currencies. In this strategy, a trader keeps rotating or converting his assets in three currencies taking advantage of variation in pricing of respective currencies.

3- Explain the Triangular Arbitrage Strategy in your own words. (You should demonstrate it through your own illustration)

With respect to cryptocurrency, Triangular Arbitrage can be explained as revolving your crypto assets between pair of three coins and eventually converting them back into the first set of coins.

Demonstration through Illustration:

Here in the graphical representation, we can see A person had initially 1000 BNB from which he bought 8.022000 Bitcoins. Then he opted to purchase Etherium coins in exchange for 8.022000 bitcoins from which he got 115.4510 Ethereum coins. Finally, he purchased BNB coins again and got a 1004.559 BNB Token.

Conclusion: In this short period trade the investor takes a good profit of 4.559 BNB due to liquidity in the market.

Make a real purchase of a coin at a slightly lower price in a verified exchange and sell it in another exchange for a higher price. (Explain how you get your profit after performing Arbitrage Strategy, you should provide screenshots of each transaction showing Bid, Ask prices)

Verified exchange

Before I start purchasing I’ll show the proofs of the exchange being verified in both exchanges.

Now as you can see in the right screenshot I’m going to purchase Dodge coin for $16.709. In the left screenshot, it can be seen that I now have 82 Dodge in my wallet.

To sell the Dodge coin in another market I’ll have to transfer these coins to another exchange. In this case, I’ll transfer these Doge coins from Binance to the Huobi exchange.

Now you can see I’m in Huobi exchange here I will tap on the deposit button shown in the right screenshot to get my Dodge coins here. When I’ll tap on deposit there will be a search bar. Here I’m going to type Dodge as I am supposed to deposit them here.

After I clicked on the deposit you can see in the screenshot there is a QR code and an address through which I can deposit my Dodge coins. Now I’ll copy this address.

Now I will head back to Binance app and will tap on the withdrawal option as shown in the right screenshot. After clicking on Withdraw, you can see a search bar in the next screenshot where I will type “Dodge”.

After tapping on doge you can see the WITHDRAWL DODGE page, here I will paste the address I copied from the Huobi exchange. After pasting they will be asked me to confirm the withdrawal fees i.e. 5 dodge coins as you can see in the screenshot. After confirming my withdrawal fees there’s going to is another confirmation required for finally placing my order which you can see in the right screenshot.

After confirming my order I received an OTP on my phone number and email which I am supposed to enter to verify my order. I submitted my received OTP to confirm verification after that my withdrawal request will be submitted. The verification and withdrawal request submission can be seen in the screenshots.

In the screenshot, you can see I’ve successfully received my 77 Dodge coins in my Huobi exchange account. As shown in the next screenshot you can see I’m selling these dodge coins in USDT for $17.034548000.

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Here you can see I’ve placed my order of selling my Dodge coins for $17.034548000.

Comparatively, as we can conclude I purchase these dodge coins for $16.709 and sold them in another exchange for $17.034548000. Upon calculation, I observed my trade made a profit of 0.32554 cents.

BID PRICE AND ASK PRICE WHILE PURCHASING AND SELLING DODGE COIN

Here in the first screenshot, the asking price and bid price while purchasing Dodge coins on Binance was

Ask Price:0.2018

Bid Price: 0.2017

In the second screenshot, the asking price and the bid price while selling Dodge coins in Huobi exchange was as following

Ask Price: 0.201220

Bid Price: 0.201219

Invest for at least 15$ worth of a coin in a verified exchange, and then demonstrate the Triangular Arbitrage Strategy step by step using any other coins such as BTC and ETH. (Explain how you get your profit after performing Cryptocurrency Triangular Arbitrage Strategy, you should provide screenshots of each transaction)

Here in the screenshot provided above it can be seen that investment is made from a verified account.

Now as you can see in the screenshot provided above I have a total of $18.49 from which I’m going to purchase 0.053 BNB coins.

Now I’m going to purchase bitcoins in exchange for my BNB coins by selling BNB coins on 0.053 as you can see in the screenshot attached above I’ve got myself 0.000427 bitcoins.

Here we can see my trade is currently profitable as there are $18.70 earlier which was $18.49

Now I’m going to purchase Ethereum coins in exchange for my 0.000427 bitcoins. By selling my bitcoins on 0.070053 I’ll be getting a total of 0.0061 Ethereum coins as highlighted in the screenshot above.

Finally, I’ll be purchasing my BNB again from my 0.0061 Ethereum coin as you can I got 0.052 BNB coins highlighted in the screenshot above.

Now as we can see the final results I have a total of 0.051977 BNB coins i.e $18.12 initially which was $18.49.

As we can observe my trade had been in loss due to the illiquid market which usually occurs when assets can’t be exchanged without a loss in value.

6- Explain the Advantages and Disadvantages of the Triangular Arbitrage method in your own words.

ADVANTAGES

Risk-free Trading

back in the day’s trading has proved itself extremely risky however arbitrage trading with its different low-risk trading edition.

Protected Trade

With the growing fame of arbitrage trading, these trades are ensured by an advanced operating system that protects the investor from man-made errors. Moreover, the short-term investments emit possibly most risk features with dominant chances of profit.

Low Investment

Arbitrage trading provides an opportunity to gain high profits from low investment. Who doesn’t want that now? It can be done by smart utilization of indifferent pricing in different markets.

DISADVANTAGES

Lack of Proper Knowledge

To make profitable trade it is necessary to have proper guidance of your assets. There are a great number of crypto arbitrage trades however one requires well-enough knowledge to get the best opportunity.

Availability of Latest Technology

The fluctuation in pricing is simultaneously one needs highly advanced technology to make the right trade at accurate time.

Regard
@aizazghumman