Securing Risk-free Arbitrages on Betting Exchanges

By: George Morrsion
Submitted: 2007-01-17 16:15:10
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Most people have now become familiar with the concept of arbitrages, and the opportunities which betting exchanges create in order to secure an arbitrage.

As a very brief explanation to those who may be unfamiliar to the term, an arbitrage is the practice of taking advantage of a state of imbalance between two or more markets. A combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices.

In the case of the betting exchange, the two markets would represent the back side of the bet and the lay side. In order to create a risk-free arbitrage, a punter would lay a horse at a price, and then back the SAME horse when it's odds have increased. The same applies to backing a horse, and then LAYING the same horse if it's odds decrease.

A simple example is offered:

I have ?1000 in my account

I look at the horse SIR MONTY in the 4:10pm at Salisbury.

At 4:05pm I lay the horse for ?100 at odds of 3.0 (my account increases temporarily by ?100 - now showing ?1,100) the horses odds begin to increase

At 4:09pm I back the horse for ?75 at odds of 4.0 (?75 now leaves my account - now showing ?1,025)

If the horse wins:

I will lose ?300 from my account from the lay bet (now showing ?825)

I will also win ?300 from my back bet (now showing ?1,025)

Profit made ?25

If the horse loses:

I have lost my ?75 stake, but kept the ?100 lay

Profit made ?25

This in effect is an arbitrage. (This is merely an example, and you should always take into account the exchanges commission which will be deducted from winning bets - there is a very good, and completely free arbitrage calculator available here.

But how can we tell which direction the odds are going to shift in order to secure the arbitrage?

There are various methods for doing this:

1. Who do the top tipsters predict will win the race?

It is incredible just how huge the level of influence these tipsters have on the uk race market. Many top tipster have become household names, with the Sun's Templegate and the News of the Worlds Pegasus being two of the more common ones. If Templegates 'NAP' (best bet of the day) is priced above 5/1 more than 60 minutes before the race is due to begin, and there isn't any odds-on favorite in the same race to oppose it, the NAP's odds will regularly tend to decrease. In this situation You would back early, and then lay the horse closer to the start of the race as it's odds decrease. This will help you secure the arb.

A good source of NAPS can be found at http://www.dailynaps.co.uk which provides a free daily race-card of uk naps.

2. Watch for changes in the weather!

This may seem obvious to some, but the changes in the weather can adversely affect the outcome of a race. For example, you get up at 6am and hear on the news that there is a high probability of rain later that day. You notice on the exchange that the odds-on favorite in the 3:30 at Ascot is trading at 1.6. After some checking, you see that this favorite has only ever won on firm ground. If it does happen to rain, the ground will soften, and the likelihood of this horse winning decreases. So in this case you lay the horse early, and closer to the start of the race the odds should drift out, which is when you then back the horse. Again, creating an arb.

A good source for UK weather updates can be found at http://www.meto.gov.uk/

3. Use multiple exchanges

A lot of people fail to check the price discrepancies between the different exchanges. For example the odds for SIR MONTY could be:

 BETFAIR
 back          lay
 3.2           3.4

 BETDAQ
 back          lay
 2.8           3.0

As you can see, if you lay the horse on Betdaq at 3.0, and then back the SAME horse on Betfair at 3.2, you have again created an arbitrage! You should note that the odds discrepancies are usually VERY small, but they do exist. You should also never limit to looking for arbitrages in just the horse racing market. They often exist in all sorts of other markets.

4. Monitor Shifts in prices

Almost all of the time, the majority of money traded on exchanges is on the first 3 favorites of the race. (The 3 horses with the lowest odds) A good way to monitor shifts is to pick a time around 5 minutes before the race (when the majority of money is being traded), and then write down the odds of the first three favorites.

Once you have them written down, wait for 60 seconds, and write down the odds of the three favorites again. Now back the horse/s whose odds have decreased, and lay the horse/s whose odds have decreased.

Most of the time the odds will continue to shift in the same direction, so wait for another 60 seconds, and now LAY the same horse/s you just backed, and BACK the same horse/s you just layed. This takes practice, but can often lead to small (but risk-free) arbitrage opportunities.

5. Look out for big bets!

The figure just below the odds in the betfair screen, show the amount of money available to trade at those odds. This figure usually increases steadily, the closer you get to the start of the race, but if you suddenly notice a huge jump, this could give an indication of the market, and it's often a good idea to follow this.

For example, the favorite SIR MONTY has odds trading around at 2.6 with the amount of money available at 300. You watch the value for a little while at see the following.

300 changes to 290 changes to 220 changes to 160 changes to 240 changes to 330 changes to 380 changes to 310 changes to 5600 changes to 5545 changes to 5520

You will notice that there has been a sudden increase in this figure (from 310 to 5600). This means someone on the exchange is suddenly prepared to lay this horse for a lot of money! It of course could be purely coincidental, but this shift often creates an overall market shift. In this situation, you would do the same.. You would lay the horse as well! After all, if someone is prepared to lay this horse for a huge amount, it doesn't have much confidence in it. People will often notice this also, in which case the odds of the horse will drift (increase) and after this you will then have the opportunity to back the same horse at greater odds, creating an arbitrage.

6. Use software to look for arbitrages on your behalf

This topic deserves an entire article to itself! You can use exchange software to look for arbitrage opportunites for you, by specifying triggers, which will place bets in the event of an arbitrage opportunity appearing. For example, tell the software to monitor the shift in odds. If it sees that the odds have increased over the last 2 minutes. then place a lay bet, wait for 60 seconds then place a win bet on the same horse. This is more complicated, but well worth the time and effort. The best piece of software on the market for doing this is MarketFeeder Pro.

Hopefully some of these tips will help you increase the chances of obtaining your zero-risk arbitrage!

Article source: Expert Articles