In the previous publication, we learned about TRIANGULAR ARBITRAGE. ๐บ
We saw that we can do a cycle like:
๐ต USDT โ BTC โ ETH โ USDT
But a question came up:
๐ค How to execute these 3 operations quickly, before the opportunity disappears?
This is where the TRIANGULAR ARBITRAGE BOT comes in. ๐ค๐
๐ WHAT DOES THE BOT DO?
A bot can continuously monitor the prices of different trading pairs.
For example:
๐น BTC/USDT
๐น ETH/BTC
๐น ETH/USDT
The goal is to check whether there is a sufficiently large price difference so that a complete cycle can result in more USDT than the initial value.
Binance explains that arbitrage bots can analyze different pairs and look for price discrepancies to execute cycles quickly. ๏ฟฝ
Binance
โ๏ธ HOW DOES IT WORK IN PRACTICE?
Imagine the bot starts with:
๐ฐ 100 USDT
It checks the prices and identifies a possible opportunity:
1๏ธโฃ USDT โ BTC
The bot uses USDT to buy BTC.
โฌ๏ธ
2๏ธโฃ BTC โ ETH
Then use the obtained BTC to buy ETH.
โฌ๏ธ
3๏ธโฃ ETH โ USDT
Finally, it sells the ETH again for USDT.
๐ The cycle is complete.
If the final result is higher than the initial 100 USDT, there is a positive difference.
BUT NOTE: this doesnโt necessarily mean profit yet.
๐งฎ THE BOT NEEDS TO DO CALCULATIONS BEFORE TRADING!
Before executing the cycle, the system needs to consider:
๐ธ Trading fees
๐ Spread
โก Slippage
๐ง Liquidity
โฑ๏ธ Execution speed
A small opportunity can disappear after considering all of these costs. ๏ฟฝ
Binance +1
Thatโs why a well-developed bot shouldnโt just ask:
โIs there a price difference?โ
It needs to ask:
โAfter all fees and costs, is there still an opportunity?โ
๐ค WHAT IF THE OPPORTUNITY DISAPPEARS?
This is one of the biggest challenges.
Imagine:
๐ The bot identifies an opportunity at 10:00:00
But while executing the trades...
USDT โ BTC โ ETH โ USDT
prices may change.
The opportunity can shrink, disappear, or even turn into a negative trade.
Binance specifically highlights timing, slippage, and liquidity as important risks in triangular arbitrage. ๏ฟฝ
Binance
๐ง SO WHAT DOES A BOT NEED TO HAVE?
A triangular arbitrage bot can be structured to:
๐ 1. Monitor the pairs
Continuously monitor prices.
๐งฎ 2. Calculate the cycles
Test different combinations between three currencies.
๐ฐ 3. Calculate net profitability
Consider fees and other costs.
๐ฆ 4. Set a minimum limit
Execute only when the defined conditions are met.
โก 5. Execute orders
Execute the trades quickly.
๐ 6. Control risks
Avoid trades when liquidity or conditions arenโt suitable.
๐ฅ BUT HEREโS THE MOST INTERESTING PART...
But can we CREATE OUR OWN BOT to look for these cycles on Binance?
๐ค๐
And more:
๐ Can it analyze multiple pairs?
๐ Can it automatically calculate the potential profitability?
๐ Can you consider fees before trading?
๐ Can it work automatically?
Thatโs exactly what weโre going to start exploring in the next post. ๐
๐ข PUBLICATION NO. 5
๐ค โHOW TO CREATE A TRIANGULAR ARBITRAGE BOT FOR BINANCE?โ
Letโs start breaking down the project step by step, from the bot logic to identifying opportunities.
๐ฌ Would you like to see how this bot would be built?
Comment โBOTโ ๐
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