What is Arbitrage Trading?

Sports Betting Arbitrage, Scalping, Sure Bets, and Arb Trading all refer to the one thing, the idea of making a guaranteed profit from a difference in odds between sportsbooks. Normally, backing all outcomes of a single sporting event at a single bookmaker would result in you guaranteeing a loss of a few percent – this is the bookmaker’s margin. However, if we take the best competing odds from different bookmakers, it is possible to make it so that guaranteed loss turns into a guaranteed profit. By betting on those high odds so that your winnings are the same no matter what the outcome, you are arbing.

Examples are the easiest way to clarify exactly what that means, so just consider a tennis event where you can bet $100 on each player at odds of 2.05 at two competing bookmakers. All together you outlay $200 ($100 at each bookmaker), but if either bet wins you receive $100 x 2.05 = $205. With a $200 outlay, that is a $5 profit no matter which player wins.

Another example:

Pinnacle Sports has odds of 1.10 on Team A and 8.00 on Team B
Canbet has odds of 1.20 on Team A and 5.00 on Team B

In order to help you understand exactly how arbitrage works, the following list shows you what needs to be wagered to win $1000 from the odds offered
on this game:

Pinnacle Sports
1. $909.10 on 1.10 wins $1000
2. $125.00 on 8.00 wins $1000

3. $833.35 on 1.20 wins $1000
4. $200.00 on 5.00 wins $1000

 Looking at those numbers you can clearly see that backing both possible outcomes at Pinnacle will cost you $1034.10 and you will only win $1000, hence costing you $34.10. Backing both sides at Canbet will cost you $1033.35 and you will still only win $1000, hence costing you $33.50. So clearly both Pinnacle and Canbet have set their odds well, they will make a profit no matter who wins.

However, if you backed the underdog at Pinnacle (8.00) and the favorite at Canbet (1.20) you would be placing only $958.35 in order to win $1,000. That is a guaranteed profit of $41.65 because you are using the difference in each bookmakers pricing. No matter who wins, you will win $1,000, and you will have only outlaid $958.35.

Arbitrage trading is as simple as that. In practice, it involves comparing the odds of numerous bookmakers to find the best odds on offer, then seeing if those odds create a profitable return or not. If they do, place the bets and wait for the match to play out to claim your profit.

Arbitrage Trading, Scalping, and Other Terms

Technically, Arbitrage Trading is defined as “the simultaneous buying and selling of assets in different markets or in derivative forms, taking advantage of the differing prices.” Which is another way of saying ‘Buy low, sell high’.

Similarly, Scalping is defined as “To engage in the reselling of something, such as tickets, at a price higher than the established value.” This practice is most commonly seen with sports and music concert tickets.

Both of these terms have been used to describe the idea described above – betting on all possible outcomes for a guaranteed profit – because they use the same principles: Take advantage of a difference in pricing for your own profit.

‘Surebet’ is another term frequently used to refer to an individual occurance of this situation. Similarly arbitrage is abbreviated to ‘arb’ and used the same way – thus a ‘Sports Arbitrage Trader’ will place arbs (surebets).

Much more recently, a couple of companies have tried to separate themselves from the well known arbitrage, surebet and scalping terms and refer to it as ‘SORT trading’ and ‘PFD Trading’ – acronyms for ‘Simultaneous Offsetting of Risk Technology’ and ‘Profit From Differences’, respectively. These terms describe the activity accurately enough, but the motivations of the companies for creating these new terms are questionable.1, 2

Click here for more examples of sports betting arbitrage scenarios.

Additional Reading

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