Steemit Crypto Academy Contest / S13W2 - Triangular arbitrage.

Hello friends!
Week 2 has started and Crypto Academy has organized another amazing contest which is about Triangular Arbitrage. It is interesting topic which will guide many newbies here.
So, Let's start this contest without wasting any time.

^{Image edited on Canva}

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Explain in your own words, What is triangular arbitrage?

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Triangular Arbitrage Trading is basically a trading in which trader takes trade between three types of currency and makes profit. It happens when the exchange rates of particular currencies differ.

In Triangular Arbitrage, Trade look at the market when they found some currencies whose exchange rate differ, then They can exchange these three currencies to generate profit with minimum risk. Let me tell you the full process.

In this, Trader buys another currency from original currency and then sell that currency to third type of currency and after that, Trader sell that third currency to the original one and generates profit from the price difference of these currencies. We have to trade these currencies in small interval of time. We have to fast as these minor price differences don't last for a long time.

We can see most of these type of opportunities in Crypto Markets and Forex Markets as these markets are volatile.

For example, You have some amount of X currency and then, You sell it and exchange it to Y currency and then, You exchange it to Z currency and at last, You have exchange Z currency to the original one which is 'X' currency and now, You have more amount than the amount you have started and This amount is the profit through Triangular Arbitrage.

How to do triangular arbitrage trading?

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For Triangular Arbitrage Trading, You need to find an opportunity where You will trade 3 currencies whose exchange values differ and will trade in these 3 currencies and will end up making some profit.

• First of all, Look out for an opportunity and these type of opportunities mostly occur in crypto and forex markets as these are volatile markets.

• Look out at all aspects like transaction fees as You may lose some of your capital in transaction fees if it is higher and then you will end up losing some part. That's why, look out on transaction fees also and It should be low.

• After finding opportunity, then Do your calculation like Calculate your profit from the capital you have initially. If you can make some amount of profit after deducting all type of transaction fees, then Go ahead.

• At last, It is most important that You need to trade very fast as these opportunities don't last for a long time. You need to be quick in every trade.

For Example,
Let's suppose I found a triangular arbitrage opportunity in crypto market. I have 10,000$ capital. And these 3 cryptocurrencies are-
USDT, ETH and BNB. These are the exchange rates.

1 ETH = 1786.65$
1 BNB = 0.1285 ETH
1 BNB = 224.7$

First step, I have 10,000$ as capital and I will buy BNB from USDT and hence, I bought 44.503 BNB from USDT.

Second step, I will exchange ETH from BNB whose exchange rate is 1 BNB = 0.1285 ETH and hence, I bought 5.71 ETH from BNB.

Last Step, I have now 5.71 Eth and I will sell them to get USDT which was my initial currency and currently, 1 ETH = 1786.85$ and hence, I sold them and get 10,200.9$ as my final amount.

My initial capital was 10,000$ and my final capital is 10,200.9 $. So, I made around 200.9$ profit through Triangular Arbitrage Trading with minimum risk. We should also keep in mind about transaction fees. And Whatever is the transaction fees, let it be 10$ in all these trades, then I am still in profit.

What is the difference between arbitrage and triangular arbitrage?

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Let's discuss difference between arbitrage and triangular arbitrage.

Arbitrage Trading	Triangular Arbitrage Trading
It is a type of trading in which We observe price difference of same asset in different market and then We buy the asset in one market and sell it in another market to generate some profit.	It is a type of trading in which three currencies are involved and we trade all these three currencies with price differences and buy and sell these currencies and return to our initial currency with generating some profit.
It is slightly an easy method as It involves buying selling of same currency in different markets.	It is difficult process as it involves trading in three currencies.
We can make slightly less profit in Arbitrage.	We can make higher profit in Triangular Arbitrage.
It involves different market and same asset.	It involves same market and different assets

Do an example of triangular arbitrage, having 10,000 Steem as the first cryptocurrency. You can choose the remaining 2 cryptocurrencies.

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Now, Let's do an example by having 10,000 Steem as initial capital and I choose Ethereum and USDT as remaining cryptocurrencies. So, I will do triangular arbitrage trading using these 3 cryptocurrencies. Let's talk about exchange rates of these currencies.

1 USDT = 4.5 Steem / STEEM/USDT = 0.222$

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STEEM/ETH = 0.0001150 / 1 ETH = 8695 STEEM

ETH/USDT = 1786.65$

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First of all, I will buy USDT by selling all these Steem tokens. So, After selling 10,000 Steem, I will get 2,220 USDT.

Now, I have 2220 USDT and I will sell these USDT and buy ETH. 1 ETH is equal to 1786.65$ and hence, I will get 1.242 ETH.

Last step, I have 1.242 ETH tokens and Now, I will exchange them and buy Steem tokens of these Ethereum and 1 Ethereum is equals to 8695 Steem at current market price.

So, I will get around 10,799 Steem tokens after selling 1.242 Eth. And I got my initial currency and I have now 10,799 Steem tokens which are 799 more than my initial capital which means I have made an profit of 799 Steem tokens.

Now, Let's assume there is a transaction fees which is 0.1% as We took these trades on Binance Exchange and 0.1% is the transaction fees on Binance Platform. On 10,799 Steem, 10.7 Steem deducted as transaction fees.

So, We made around 788 Steem Profit (approx) which is a good profit.

Conclusion

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That's all from my side. It was an amazing contest organized by Steemit Crypto Academy and I have discussed about Triangular Arbitrage Trading in this post which is a great strategy for making profit with minimum risk.

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I would like to invite @yancar, @malikusman1 and @starrchris to participate in this contest.

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Thank You!