[Cryptocurrency Triangular Arbitrage]-Steemit Crypto Academy | S4W4 | Homework Post for @reddileep

ENTIRE QUESTION

HOMEWORK

1- Define Arbitrage Trading in your own words.

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

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

4- 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)

5- 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)

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

1- Define Arbitrage Trading in your own words.

Cryptocurrency arbitrage is a strategy in which investors buy an asset on one exchange and then quickly sell it on another exchange for a higher price.
Cryptocurrencies trade on hundreds of different exchanges, and sometimes, the price of a coin or token may differ on one exchange versus another.
With crypto arbitrage therefore, investors seize upon the opportunity that a digital currency is trading at a lower price on one exchange by buying and selling it almost immediately for a higher price on another exchange. Here’s a closer look at how crypto arbitrage works and trading strategies that use the tactic.

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

Triangular Arbitrage

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This is an arbitrage where the bot scans for price discrepancies in pairs on top of one exchange.
In essence, this strategy implies that the price of an asset might vary in different pairs, and this is what you can make a profit on. With triangular arbitrage in crypto, to net a profit while assuming low transaction costs, traders utilize a discrepancy between three currencies, which occurs when exchange rates do not match up.
This rading has the word triangular in its name, since it’s easier to visualise the algorithm by cracking it down into three logical steps.

Cross Exchange Arbitrage

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It means that the crypto arbitrage sells high on one exchange and buys lower on the other, executing two orders simultaneously.
The difference in prices is often found between local exchanges, which connects to the economic situation in the countries where the exchanges are based. Exchanges also have different processing capacities, meaning that smaller exchanges will often be lagging behind larger ones, creating opportunities for profit.
When a trader spots a price difference between exchanges, they may buy an asset at a cheaper price and sell it at the exchange where the price is higher. The mechanism also works the other way around.

Exchange-Broker Arbitrage

Once the price difference is back to the normal value, the profitable trade value is higher than that of the loss trade, yielding an overall profit.
It is an unusual category for the crypto niche. It is blurring the boundaries between traditional money and cryptocurrencies, adding to the stock characteristics of the crypto token.
And buying and selling cryptocurrencies with a broker is possible for those who don’t care if they actually have ownership of the currency they wish to trade.

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

Image created by me in MS word

The triangular Arbitrage involves three exchange process. Here we exchange three assets with each other on an exchange because of difference between the price of these three at time of exchange. In Triangular arbitrage, the three crypto currencies are exchanged with each other on an exchange platform. Here the trader exchange the three crypto currencies on the same exchange platform with each other and this is done because of difference between the price of these assets when we exchange them with each other. Here we take the benefit from the price of the three crypto currencies.

4- 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)

• First I bought steem from probit exchange

• Then Withdraw Steem from Probit to binance exchange

• I got 37 Steem Coins

• I sold steem for 0.00041329 BTC. It means 19.75 USDT

5- 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)

• I sell steem to BTC pair. Then receive 0.00041329 BTC

• Buy 0.0057 ETH coin from 0.00041329 BTC

• Again Buy 38 Steem coin from 0.0057 ETH after a successful Arbitrage Triangular Trading. Extra 1 Steem Coin I received as a profit.

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

ADVANTAGES	DISADVANTAGES
The number of cryptocurrency exchanges in the world has surpassed 400. Each of them offers hundreds of markets opening up thousands of opportunities for crypto traders. Tracking opportunities might be a challenging task, but specialized arbitrage software will come handy.	Some crypto exchanges have a strict compliance procedure. On top of going through KYC, you may be required to verify your identity. Some exchanges do not only ask you to provide identification, but they may also request you to provide a bank account and other details.
Cryptocurrency market is prone to irregularities and discrepancies between markets. It is much less automated compared to the traditional market, meaning that more decisions are made by human traders, leading to market inefficiency and discrepancies.	Cross exchange arbitrage implies that you might need to store coins across several accounts to be able to act on the opportunity as soon as it arises. What this means for you is that a substantial amount of your coins will be stored on hot wallets on exchanges and are at risk of being stolen as a result of a hack.
Cryptocurrency arbitrage is executed as soon as the opportunity arises, which means you don’t have to lock the asset in an order waiting days or may be months for the target price. All profits are taken as soon as the transaction is completed	Arbitrage profits are stable and instant, but they also may seem unsubstantial. To have bigger profits from arbitrage you need to increase a trading volume. That means you have to have a big amount of coins locked on your exchange.

CONCLUSION

Triangular Arbitrage is a trading strategy which we can use to make profits but we may undergo losses if the market is not predicted properly. Thank you Professor @reddileep for this wonderful lecture. It is very helpful for beginner traders like me.