How to change circle pointer to an arrow?

1) While the size of the dot-cursor can be altered, you cannot change its style from a dot (representing the “touch” point) to an arrowed pointer.

Available information about customising the Mouse/Trackpad pointer can be found here:

Use a Bluetooth mouse or trackpad with your iPad – Apple Support

For iPad, the touchpad/mouse cursor represents the relative "touch" point of the screen.

2) While the cursor style cannot be changed to that of pointer, the cursor size and colour is configurable in iPad settings:

Settings > Accessibility > Pointer Control

The screenshot above shows the pointer/cursor in its default colour - with the Pointer Size setting at its minimum.

3) Apple does invite submission of comments and feature requests via its Product Feedback portal. If you would like to see more control over the pointer style in a future version of iPadOS, this would be the most appropriate channel through which to direct your request:

Feedback - iPad - Apple

While there are no guarantees that the requested change will be implemented, if sufficient requests are received by Apple, change is perhaps more likely to occur.

The cursor is a system-level item - that an App will not be able to change globally.