# Arbitrage

Arbitrage is backing all possible outcomes of an event in a way that exploits differences in bookmakers' odds, to guarantee a risk-free return irrespective of the actual outcome.

Arbers – those who use arbitrage as a betting strategy – look for differences in the odds offered by bookmakers on single events until they find betting markets where arbitrage can be used.

Arbitrage betting on an event usually guarantees only a small profit in return for high stakes. However, small profits can add up significantly over time.

## Example of how arbitrage works

Consider theoretical tennis betting markets for the Australian Open. Bookmaker A is offering odds of 2.1 to 1.8 on a match between Roger Federer and Andy Murray. Bookmaker B is offering odds of 1.9 to 2 on the same match. The structure of these odds means that arbitrage is possible.

Suppose you bet £100 on Federer at Bookmaker A and £100 on Murray at Bookmaker B – a total stake of £200 for both bets.

If Federer wins the match, the bet at Bookmaker A will pay you out a return of £210. This means your overall profit is £10.

If Murray wins the match, the bet at Bookmaker B will pay out a return of £200, which means you have a zero net loss.

In this example, using arbitrage guarantees that you’ll either break even (getting back your full stake for both bets) or earn a profit of £10.

## Arbitrage in practice

In the arbitrage example above, both players could be backed at above evens. In reality, these types of markets are extremely rare. More frequently, an arber will have to back one player with a larger stake at low odds and a second player with a smaller stake at high odds.

The mathematics involved in calculating which betting markets offer arbitrage opportunities can be complex. As a result, most arbers use arbitrage software, which automatically identifies arbitrage opportunities and calculates how large the stakes should be to guarantee the maximum profit.

Typically the fewer the outcomes, the easier it is to calculate and place successful arbitrage bets. For example, arbitrage betting is simplest when

• markets provide two, mutually exclusive, opposing options – like simultaneously betting for and against a particular competitor winning an event
• events involve only two competitors, as in football or tennis matches (although in these cases, it’s necessary to account for the possibility of a draw).

In practice, arbitrage isn’t risk-free. Especially in online betting markets, the discrepancy in odds that allows for arbitrage often exists only for a short period, before it’s identified and corrected, or adjusted due to overall betting activity in the markets. This means that all the legs of an arbitrage have to be completed within a short timeframe. If you haven’t finished placing all the required bets or one of your bets is cancelled by a bookmaker, you may be exposed to a substantial loss.

## Arbitrage and bookmakers

Arbitrage betting isn’t illegal but bookmakers actively try to prevent it. If they suspect that you’re using arbitrage as a strategy, they may close your account or place a low bet limit on the account, to prevent you from making significant profits.

Because bookmakers try to prevent arbitrage, arbers typically use a variety of bookmakers to avoid detection. They may also have other people place bets on their behalf. Bookmakers are also entitled to cancel bets if they’ve made obvious pricing errors, potentially resulting in significant losses for arbers who’ve already placed opposing bets.

## Arbitrage and betting exchanges

Betting exchanges like Betfair have opened up a new world of arbitrage opportunities. They don’t actively prevent the use of arbitrage because successful arbitrage bets have no effect on their profit margins. Instead betting exchanges secure their profits through the fixed commissions they charge on winning bets.

Also, betting exchanges offer lay betting markets, which punters use to bet against specific outcomes occurring. Users of a betting exchange set odds and have no interest in balancing the lay book with the back book for an event, so arbers can more easily locate and exploit arbitrage opportunities.

## Types of arbitrage

### Back and lay arbitrage

Back and lay arbitrage involves using one or more betting exchanges to simultaneously back and lay an outcome, where the odds on the lay bet are shorter (lower) than the odds on the back bet. It’s also known as trading or scalping. You have to factor in the commission charged on winning bets when calculating whether this type of arbitrage will be profitable.

### Bonus arbitrage

Most bookmakers entice new customers by offering free bets when you open new accounts with them. However, you typically have to wager the amount of the free bet at least once before it’s paid out. Bonus arbitrage – also known as bonus bagging – involves using arbitrage to secure the free bet bonuses that bookmakers offer, typically by backing and laying the same selection.

#### Example:

For example, say a bookmaker offers a free bet of £10, but you have to bet the same amount out of your own pocket before the bonus is paid out. You could choose to back a selection with a stake of £10 at the bookmaker’s odds and simultaneously lay the same selection, at the same odds, on a betting exchange.

Your two bets would cancel each other out, resulting in a net profit or loss of zero. However, the bet you placed with the bookmaker qualifies you for the free £10, so you actually gain a profit to this value.

### Shop arbitrage

Also known as sharbing, shop arbitrage involves using high street bookmaker coupons plus a betting exchange to create an arbitrage position. This is possible because there’s a delay before bookmakers change the odds on their printed coupons, whereas the odds on an online betting exchange change rapidly – resulting in potential odds discrepancies that may be exploited.

## Arbitrage pros and cons

Generally arbitrage is a suitable strategy only for very experienced punters. This is because profitable arbitrage betting tends to rely on

• betting larger than usual stakes to realise profits
• continually monitoring betting markets and responding very quickly to changes
• performing complex calculations – or using potentially complex software – to identify arbitrage opportunities and the stakes required to exploit them
• successfully side-stepping bookmakers’ attempts to prevent the use of arbitrage.

Also, because arbitrage betting generally involves betting relatively large sums of money, it may require that you move money between multiple betting accounts at short notice. The delay built into the funds withdrawal process at most bookmakers can prevent you from doing this effectively.

## Successful arbitrage

If you’re aware of the risks but feel confident in your ability to recognise and exploit arbitrage opportunities, this is what you’ll need to get started:

• a big bankroll – the more bookmakers you use, the easer it will be to practice arbitrage; a £100 balance at each of 20 bookmakers is a good way to get the ball rolling, meaning you’ll need a £2000 bankroll
• an odds comparison service, so you can access and view odds across a variety of bookmakers for each event you bet on
• arbitrage software to help you avoid mistakes; some software is available for free – for example, Arb Cruncher provides free calculators for use in arbitrage betting.