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Minor: Fix misleading typo
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Edward Garson
2025-05-30 10:32:43 -07:00
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@@ -26,7 +26,7 @@ Algorithmic trading can make profits through many different strategies; part of
There are many ways to perform arbitrage, both within and adjacent to the XRP Ledger. The following examples are meant to illustrate potential strategies, but others are possible as well.
You can use **circular payments** to complete multi-asset trades for a profit. The XRP Ledger automatically connects overlapping trades between pairs of assets, as well as sets of 3 assets where XRP is the asset in the middle. However, the XRP Ledger protocol does not automatically find and compete trades across other, longer or more complex paths. (Finding the _best possible_ path is a category of problem that is known to be computationally intensive.) Therefore, if you do your own pathfinding, it is possible to find profitable arbitrage opportunities like this; if you do, you can specify those [paths](../../concepts/tokens/fungible-tokens/paths.md) explicitly in a [Payment transaction](../../references/protocol/transactions/types/payment.md). For example, imagine there are three tokens, FOO, BAR, and TST, each with different issuers. If you can buy 2 BAR by spending 1 FOO, then buy 3 TST by spending those 2 BAR, and finally buy 1.1 FOO by spending 3 TST, you can earn a profit of 0.1 FOO minus any costs of the transaction such as [transfer fees](../../concepts/tokens/transfer-fees.md) of the tokens involved.
You can use **circular payments** to complete multi-asset trades for a profit. The XRP Ledger automatically connects overlapping trades between pairs of assets, as well as sets of 3 assets where XRP is the asset in the middle. However, the XRP Ledger protocol does not automatically find and complete trades across other, longer or more complex paths. (Finding the _best possible_ path is a category of problem that is known to be computationally intensive.) Therefore, if you do your own pathfinding, it is possible to find profitable arbitrage opportunities like this; if you do, you can specify those [paths](../../concepts/tokens/fungible-tokens/paths.md) explicitly in a [Payment transaction](../../references/protocol/transactions/types/payment.md). For example, imagine there are three tokens, FOO, BAR, and TST, each with different issuers. If you can buy 2 BAR by spending 1 FOO, then buy 3 TST by spending those 2 BAR, and finally buy 1.1 FOO by spending 3 TST, you can earn a profit of 0.1 FOO minus any costs of the transaction such as [transfer fees](../../concepts/tokens/transfer-fees.md) of the tokens involved.
You can perform **cross-exchange arbitrage** if you have accounts at multiple private exchanges where the prices for an asset are different. For example, if you can buy XRP at ACME Exchange for $0.45 per 1 XRP, then move the XRP over to WayGate Exchange where you sell it for $0.50 per 1 XRP, you can make a profit of $0.05 per XRP minus the costs of trading and sending the relevant transactions, including exchanges' fees to withdraw and deposit your profits. As a more complex example, if the BTC:ETH price shifts at ACME Exchange to make ETH cheaper relative to BTC, you could potentially take advantage of this price shift by selling ETH→XRP at one exchange, then moving the XRP to ACME Exchange and trading XRP→BTC→ETH for a profit there. Since XRP Ledger transactions settle in seconds but Ethereum transactions can take minutes and Bitcoin transactions can take hours, using XRP as a bridge currency can potentially allow you to take advantage of this opportunity sooner than simply trading ETH→BTC and then BTC→ETH at ACME Exchange. (This only works, of course, if there is enough liquidity and tight enough spreads that exchanging to XRP and back doesn't cost more than your profits.)