Triangular Arbitrage Guide

Every exchange quotes many pairs of the same assets: BTC/USDT, ETH/USDT, ETH/BTC and so on. Each pair updates on its own order book, so for short moments the implied cross rate can disagree with the direct rate. Triangular arbitrage tries to capture that inconsistency with three quick trades inside one account.

• The loop starts and ends in the same asset, for example USDT to BTC to ETH and back to USDT.
• The edge comes from a mismatch between the direct pair price and the implied price through the third asset.
• Because everything happens on one exchange, there are no deposits, withdrawals or network confirmations.

Suppose BTC/USDT is 100,000, ETH/BTC is 0.0400 and ETH/USDT is 4,020. The implied ETH price through BTC is 100,000 x 0.0400 = 4,000 USDT, but the direct market pays 4,020. Buying BTC with USDT, swapping BTC to ETH and selling ETH for USDT captures the 0.5% gap before fees.

• Implied rate: BTC/USDT x ETH/BTC = 4,000 USDT per ETH.
• Direct rate: ETH/USDT = 4,020, so the loop earns about 0.5% gross.
• Three taker fees of 0.1% cost about 0.3%, leaving roughly 0.2% net before slippage.

Triangular gaps are usually tiny and disappear in seconds or less, because many bots watch the same books. The math only works when the gross gap is clearly larger than three trading fees plus expected slippage on three order books.

• Each loop pays the trading fee three times, so a 0.1% taker fee means about 0.3% total cost.
• The third leg is the dangerous one: if it fills at a worse price, the whole loop can end negative.
• Manual clicking is almost always too slow; this strategy is mostly executed by automated systems.

Cross-exchange arbitrage compares the same pair on two exchanges and usually offers larger spreads, but adds transfer or inventory management. Triangular arbitrage stays on one venue with smaller, faster gaps. Many traders start with cross-exchange signals because the spreads are easier to see and verify on a dashboard.

• Triangular: one exchange, three legs, tiny gaps, speed-critical.
• Cross-exchange: two exchanges, larger and slower spreads, transfer or pre-funded inventory required.
• The two approaches can complement each other, but they need different tooling and risk checks.