Arbitrage Explanation | Calculations | FAQ |  Before You Start

You are being redirected to the new SportsArbtirageGuide site. If you are not automatically redirected, please click here.




About Arbitrage Trading
General
Sports Arbitrage Trading
Hedging, Middling and Sides
Risk Factors
Easy Money?

General
The word Arbitrage is defined by the Compact Oxford English Dictionary as "the simultaneous buying and selling of assets in different markets or in derivative forms, taking advantage of the differing prices." The simultaneous nature of the exchange is not as important as the concept of buying with the prior knowledge of being able to sell at a higher price. A common example of this comes from people buying second hand good cheap from garage sales and markets because they know that the same goods are being sold for more on E-Bay. This buying and selling is an example of arbitrage. Or equally, a retail outlet receiving an order for 1000 units of product that it then has to order from its suppliers. The profit is already known and guaranteed before they pay their supplier.

For example

Pinnacle Sports has odds of 1.10 on Team A and 8.00 on Team B
BetAndWin 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:
1. $909.10 on 1.10
2. $125.00 on 8.00
3. $833.35 on 1.20
4. $200.00 on 5.00

Looking at those numbers you can clearly see that the sum of the two bets available at Pinnacle sports comes out at $1034.10, $34.10 more than the $1000 you would win from the single winning bet. Similarly the sum of the two bets available at BetAndWin comes to $1033.35, $33.35 more than the $1000 you would win. However, the addition of the BetAndWin bet at 1.20, and the Pinnacle bet at 8.00 comes out at $958.35...meaning that it only costs you $958.35 to receive $1000. This is an arbitrage. You place the two bets at the two respective bookmakers and no matter who wins the sporting event, you walk away with $41.65.

The above example demonstrates a number of things. Firstly, all bookmakers have their odds set so that if you back both sides, you will certainly lose. This is where their profit comes from. They basically set up their own arbitrage scenario, then monitor the betting so as to keep bets for either side balanced, and their arbitrage certain. Arbitrage will only ever occur between two independent bookmakers who for various reasons have different odds for the same event. Find 100 bookmakers, take the best odds for team A, and then best odds for team B, and there is potential for an arbitrage trade.

Back to top

Hedging, Middling and Sides
It is also possible to use arbitrage opportunities to simply secure a bet. Instead of always taking the guaranteed acceptable profit, there is potential to weigh the bets so that your profit favours one side over the other.

Using the example above, you could use your $41 guaranteed profit from the arb to further back one side. For instance, if you are confident the favourite will win, place $874.35 on the favourite and the normal $125 on the under dog. If you are wrong and the underdog wins, your gamble simply means you don't win anything substantial (you would still win 65 cents). If you are right though, then the $874.35 wager at 1.20 pays out $1049.22, an extra $8 over the standard arbitrage trade. Not much, but when it is accepted that the favourite will win 80% of the time, some professional arbitrage traders always hedge their loss and favour the favourite with every trade.

On the other hand, if you think the underdog has a real chance to win and you hedge the other way, a $165 wager at odds of 8.00 pays $1320, a profit of $320; considerably more than the $41 profit from the standard arb. Of course, this substantial increase of profit is offset by the fact that there is considerably less chance that you will actually win. Which way you want to hedge is a gamble, but at least there is no actual financial risk involved outside of the typical risk factors that come with arbitrage trading, you still can't lose your money.

Middling is another concept again completely. Middling involves taking advantage of differences in handicaps or total scores between bookmakers and trying to place two bets which will either cover each other or win twice. For example a soccer game where you can find odds of 2.00 that the total score is under 2.5, and odds of 2.00 at another bookmaker that the total score is over 1.5. This is a 100% arb, which means that you will not make any money ordinarily, but if the final score is 2, then both bets win. If you bet $500 on each side, there is a chance that it will all be for nothing, but there is also a chance that you will win $1000 outright, for no risk. Middling can be very profitable, but it is also much rarer than arbitrage.

More commonly though, you can find 'sides' which is where one side wins, and the other bet gets returned to you as no action. For example in Basketball matches you might be able to back Team A to win for odds of 2.00, and at another bookmaker back Team B with a +0.5 handicap at 2.00. If Team A wins, you gain nothing, if team B wins you gain nothing, however if the final result is a draw, your +0.5 handicap gives you a win from Team B, while Team A will have your wager returned as 'no action' (this depends on the rules of the bookmaker and the betting conditions).

Middling and Sides are convenient bonuses which can be occasionally found in the world of arbitrage if you keep your eyes open.

Back to top

Risk Factors
It should be no surprise that this isn't risk free. Conceptually an arbitrage is an exchange where your profit is known beforehand, the transaction is carried out, and you are guaranteed a payout from one bookmaker or the other which will total more than the outlay. However reality likes to ruin even the best theories.

Bookmaker Rules
Various rules set up by bookmakers have the potential to cancel one side of an arbitrage trade after the game has started, thereby exposing you to risk. The two most common examples of this are Tennis and Baseball. With Tennis, bookmakers have rules about how many matches or sets must be played for the wager to be considered active. If one bookmaker rules that the bet is active after the first ball, and the second bookmaker rules that it is active after the 3rd set, and one player retires injured in the 2nd set, then you are stuck with an un-hedged bet and the arbitrage has been ruined. Similarly with baseball bookmakers have different rules about what happens if teams change their pitchers. Sometimes the odds are allowed to change, sometimes the bet is cancelled, and some allow the bet to go ahead without change. Some of the best bookmakers let you choose your conditions before you place your bet. Hockey similarly has various rules when it comes to overtime, penalty shoot outs and drawn games. The rules very so drastically from bookmaker to bookmaker that it isn't worth trying to describe the variations. Just learn the rules of the bookmakers you want to use. Memorise them.

These risks can obviously be minimised by trading on tennis matches, hockey games and baseball games only between bookmakers who use the same, or similar rules. This reduces the risk significantly.

Time
The very nature of an arbitrage opportunity makes it brief. When an arb presents itself, many people will start betting on the higher odds (whether they are trading or not, the very reason bookmakers make the odds higher is to attract more money to that side of their books: bookmakers need to have both sides hedged so that their profit is guaranteed too!).  When odds are raised people will start betting on that side, and as soon as the bookmaker has enough bets for that side, they will lower their odds again. For the arb trader this means you have to act fast or else you risk placing your first bet just as the second bet has its odds changed, leaving you short of your arbitrage. If this does happen, you can choose to leave the single bet and hope for the best (gamble), or hedge against complete loss of your initial by backing the other side at the highest odds available (which may result in a 1-5% loss on average).

This risk can be minimised a number of ways. The most obvious is to have everything set up and prepared and double checked first, then press the accept button on both bets as simultaneously as you can. That will limit your time exposure, however you can't take too long preparing and double checking everything because often bookmakers will allow you to go all the way to the 'Are you sure you want to do this' screen with odds which are already expired and then not allow you to place the bet just when you think everything is in place. You have to refresh the odds at both bookmakers, then quickly move from that screen to placing your bet in as little time as possible.

Another trick to minimise this risk is to bet at the bookmaker which has created the arb. Usually, although not always, it is one bookmaker who has raised their odds which has created the arb. If in the example above WilliamHill, Racebook and TheGreek all have the same odds as BetAndWin, then what you want to do is place the bet with Pinnacle Sports first. Pinnacle Sports are the odd ones out and the one upon who the whole arb is dependent. If TheGreek change their odds, then you still have 4 other bookmakers to try, but if Pinnacle Sports change their odds, then the arb is gone. By watching out for who has made the arb you can virtually remove this risk factor by betting with them first.

Human Error
Human error can come in two forms: your fault, and someone else's fault. If you make a mistake, bet on cricket when you are meant to bet on tennis...then you have no one to blame but yourself. Don't make mistakes. It will cost you. The only 'someone else' who can make a mistake which will cost you money is when someone at the bookmaker has put the wrong odds up, and you see an arbitrage, maybe a 20% arb, something very profitable and very exciting. If the odds were 'an obvious mistake' then the bookmaker will most likely reserve the right to cancel the bet. This once again will leave you with half an arb, which is basically a wager. Your choice at that point (assuming the game hasn't already started) is same as above: hope for the best, or hedge your losses.

Obvious or 'Palpable' errors can be identified by a couple of factors. Odds which are 25% or more out of line with the market average are probably a mistake, and my be cancelled on you. Another indicator is where one bookmaker does not have a definite favourite while everyone else does. To clarify this, odds below 1.85 would indicate an obvious favourite, while odds above 2.25 would indicate an obvious underdog. Odds between these two values indicate that no one side is a definite favourite. How to use this knowledge to identify possible errors comes down to only trading odds where both sides agree that there is an obvious favourite/underdog, or both sides agree there is no favourite/underdog. If one bookmaker gives odds of 1.9, and the other gives odds of 2.7, then one of the bookmakers has probably made a mistake since one believes there isno favourite, while the other believes there is.

These guidelines should be able to help, remember, they are only guidelines, not guaranteed fact. Bookmakers may still cancel bets that meet all of the above criteria, and they may let bets go which meet none of it. This is simply a risk which has to be accepted.

Back to top

Easy Money?
If you search the internet you will find a lot of hype about sports arbitrage trading, and you may even be wondering if its legal it sounds so good. Sports Arbitrage trading is a great concept, but it is not 'easy money'. There is a large deal of work involved (believe me, that's why I created this website!). Aside from the setup (where most of the work is involved), there is the practicing which you need to do to familiarise yourself with 10-100 bookmakers websites and rules, and then readiness to trade within the short time frame. Sports Arbitrage trading isn't a scam and it isn't too good to be true, but it is probably the best alternative income available. If you ever find yourself wishing there was something you could do from home to earn extra money with your down time: this is it. It's unobtrusive, low priority work which you can do to whatever extent you want whenever you want. You are in complete control of your own money, and you can pull out at any time without any penalty. It will not make you a millionaire and it will not happen by itself, but if you like the excitement that does come with it and you wish you could do something, anything to make some extra cash, then sports arbitrage trading is perfect.

If you spend a little time learning how to do it, familiarising yourself with the process, practicing some paper trades (going through the motions without actually placing real money wagers), and you take the above mentioned risk minimisation steps, then sports arbitrage trading is the best way to make some extra money at home.

Back to top