Arbitrage Training

If you win every time, is it still gambling?

The truth about sports arbitrage

Imagine you could bet on both teams in a match and make a profit no matter the outcome. This is called sports arbitrage, and turns gambling into a profitable investment method. But is it really that simple?

Many in the industry are familiar with the concept of sports arbitrage and sure bets. People have been trading for almost a decade, and a lot of people have made (and are still making) good money from it. But few know the intricacies and requirements of successful trading.

Sports arbitrage explained

Arbitrage is the financial term for simultaneously buying and selling the same asset in two different markets in order to take advantage of differing prices. This means you could theoretically buy shares in British Petroleum on the London Exchange, and immediately sell them on the New York Stock Exchange for a profit. In practice, however, arbitrage opportunities in the financial market seldom exist longer than a few microseconds because of high-frequency trading.

Arbitrage in sports betting differs in three important ways. First, the bookmakers (the markets) don’t strive for perfect balance like the financial markets. The odds (prices) need to be attractive in an increasingly competitive market. This leads to the existence of hundreds of arbitrage opportunities at any given moment.

Second, the sports markets move very slowly compared to the financial markets. Sports arbitrage situations often exist for several minutes, sometimes even hours. These two differences make sports arbitrage trading thriving and profitable, although it is not without challenges.

The third important difference is that bookmakers can deny buyers. By limiting expert players, bookmakers can deliver attractive odds and still protect themselves from traders taking advantage of their prices.

The mathematics of a surebet

An arbitrage arises when the sum of two or more inverted odds is below 1. The odds need to cover all possible outcomes of the match. Example:

– Nadal to win has odds 1.80 (-125) at bookmaker William Hill.
– Federer to win has odds 2.45 (+145) at bookmaker Gamebookers.

If you place $585 on William Hill for Nadal to win and $430 on Gamebookers for Federer to win you have placed a total of $1,015. The different outcomes of the event are:

– If Nadal wins, your return will be a total of $1,053 (1.8 * $585 = $1,053)
– If Federer wins, your return will be a total of $1,053.50 (2.45 * $430 = $1,053.50)

This means that you will profit $38 or $38.50 depending on who wins the match.

The catch

If sports arbitrage trading is profitable, why isn’t everyone doing it? It’s a good question, and the short answer is because it takes more time and effort than most people can commit to. There are also risks you need to be aware of. Just like poker or day trading, it’s definitely not for everyone! There are many challenges involved.
Most importantly, you need to invest time to educate yourself. It takes at least a week of “paper trading” (trading with little or no real money) before you’re up to speed and are experienced enough to avoid the most obvious risks. Placing each trade is quick, but between trades you need to have access to a computer running sports arbitrage software that alerts you to new profitable situations.

Even though profits can easily reach 10 percent per month, you need to have a large bankroll to get a decent hourly income. Your profits will also be proportional to the time you invest.

These sports arbitrage opportunities (or “arbs”) usually exist for 1-10 minutes. Some arbs are around longer but that’s more of an exception than a rule. Having software that helps you place trades quickly helps. No matter your speed there is always a small risk that odds will change after you’ve placed your first bet and you might need to accept a small loss instead of risking your entire stake.

A long-term challenge is that many bookmakers don’t like expert players and will limit your account sooner or later.

All these challenges can be overcome by an experienced arbitrage trader, but to get there you need to be committed and invest time. If successful, you may be rewarded with 10 percent (often tax-free) profits every month – and without the big risk associated with other investment methods, like trading on the stock market.

Sports arbitrage for affiliates

Arbitrage traders always try to bet their maximum allowed stake on every bet. This means they can be among the most valuable customers an affiliate can have. As an example, the average arbitrage trader bets $4,400 every month on Pinnacle Sports. This is 150 times more than the average customer bets at William Hill (according to their annual report).

Sports arbitrage for operators

Many bookmakers frown on all kinds of expert players and will try to detect and limit their betting activity. However, all betting exchanges, and bookmakers with more accurate and fast-moving odds (like Pinnacle Sports), welcome arbitrage traders with open arms.

As the betting industry grows more similar to the financial market, we see an interesting shift in the industry toward automation and more balanced odds. We expect this will lead to slightly fewer arbitrage opportunities, but more importantly, a more welcoming attitude by the bookmakers. With fewer restrictions, profits will increase.

By Simon Renström

“Simon Renström is CEO of RebelBetting, producers of the world’s most popular sports arbitrage software. After 15 years as a software developer and manager at some of the largest IT companies in Sweden, he quit his job to form RebelBetting in 2008 with a small team of gaming professionals and technical experts.”

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