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Oct 11, 2016
Oct 11, 2016

Arbitrage betting explained

Arbitrage betting explained in simple terms

See a simple arbitrage example

Potential pitfalls of arbitrage betting

Arbitrage betting explained

Arbitrage betting promises risk free returns - the Holy Grail of gambling - so is naturally a very popular topic within the betting community, but how does arbitrage betting work? We have laid out everything you need to know; this is arbitrage betting explained.

Arbitrage Betting

Arbitrage betting exploits the opportunity to place proportionate bets on each outcome of the same event with differing bookmakers so that a profit is guaranteed regardeless of the outcome.

What is Arbitrage betting?

Any type of risk-based activity is a search for price-differential. If you can buy widgets from Factory A for €10 and sell them to Retailer B for €15 you can pocket €5 risk free.

A huge proportion of profit generated by the investment banking industry is based on this simple principle - in much more complex form - across a dizzying array of commodities and assets.

Arbitrage betting by comparison is much closer to the simple widget analogy above - it is used by many gamblers to successfully make risk-free profit.

To explain how arbitrage works and why Pinnacle is happy to accept it, we created this short video:

Example of an arbitrage bet

The best way to explain how arbitrage works is through a simple example. Take the odds on a tennis match between Player A and Player B offered by two hypothetical bookmakers - A & B - as illustrated in the table below.

Arbitrage betting example

Player 1Player 2MarginStakeProfit
Odds Bookmaker A (BA) 1.300 3.930 102.4% 26.54 4.30
Odds Bookmaker B (BB) 1.420 2.900 104.9% 73.46 4.31
Arbitrage (Combining Player 1/BB & Player 2/BA) 1.420 3.930 95.9% (4.1% profit margin) 100

The margin is indicated for each bookmaker i.e. the edge in their favour (read this article to understand how to calculate betting margins). By cross-matching the odds from Player 2 at Bookmaker A (3.930) with those for Player 1 at Bookmaker B, (1.420) the margin is in the bettor's€ favour providing a guaranteed return of 4.1% (100 - 95.9 = 4.1). Importantly, your stake needs to be in proportion to the odds as illustrated, which gives a guaranteed return of €4.30 whether Player 1 or Player 2 wins.

This principle can apply to any betting market, beyond just two selections, including spread betting, while it also has wide application in live betting where arbitrage opportunities are constantly available by Backing and Laying in a constantly shifting market. You can also use free bonuses in an arbitrage bet to lock in a guaranteed profit, but the conditions that apply are restrictive.

Why do arbitrage opportunities occur?

Though you may be simply interested in profiting from arbitrage, it is important for context to understand why arbitrage opportunities occur. These are the main reasons:

  • Bookmakers differing in opinion

  • Bookmakers taking a specific position or running a promotion

  • Bookmakers slow to move their odds or simply making a mistake

The first of these is the most common, and is particularly relevant in relation to Pinnacle as our risk-management is regarded as among the best online. As a result, our odds feature more than any bookmaker in arbitrage opportunities, even more so because we don't offer betting promotions.

Potential pitfalls of arbitrage betting

If at this point you are itching to get out there making free money from arbitrage betting, now is time for a reality check, as there is no such thing as a free lunch. Though the mathematical logic of arbitrage is sound there are risks associated with the process of finding and successfully placing the required bets. Here are the most important things to consider before starting out:

Stake limitation & account closure

Limits vary at different bookmakers, which may hinder your ability to properly exploit an arbitrage opportunity. This isn't an issue at Pinnacle, as we offer the highest limits online.

Some bookmakers dislike arbitrage players as they don't fit their desired player profile. As Pinnacle has a unique business model based on volume, we don't care what the betting intent is - we are arbitrage friendly.

Bet cancellation

Bookmakers can cancel bets where mistakes have been made, which would leave you exposed on the other side(s). This can easily wipe out your profits accrued over a long period. Take a close look at the Rules for each bookmaker you intend to use for arbitrage.

Complexity

To fully exploit arbitrage betting, you must have a huge number of funded bookmaker accounts, as well as the time to take full advantage. This involves significant organisation and effort. Many practice arbitrage betting for a living (financial arbitrage) in which time invested must also be measured as a cost. There are many services out there that will do the hard work for you of finding arbs, but they will charge a fee which eats into your profit, and do not eliminate all the risks outlined here.

Fleeting Arb Opportunities

Bookmakers are constantly updating their odds, often using their competitors as a benchmark. As a result arbitrage opportunities can last seconds rather than minutes so time of the essence, and when humans are time-pressured errors inevitably occur. Arbitrage software systems can help in this regard, but cannot guarantee that you won't be left with a naked position - in other words, you cannot cover all the bet options so will incurr risk.

Value betting vs Arbitrage betting

Some bettors argue that arbitrage simply exposes where bookmakers have incorrectly priced a market, and therefore the value is in solely betting with the 'wrong odds'. This idea is much more complex that it appears, and we have a dedicated an entire article to the arbitrage vs value betting argument.

Arbitrage Betting - Getting Started

If you have got this far you should have enough information to consider arbitrage betting. If you want to take the next step then you'll need a Pinnacle account, because having the most competitive odds online along with an arbitrage friendly policy means that Pinnacle features in arbitrage betting opportunities more than any other bookmaker.

Betting Resources - Empowering your betting

Pinnacle’s Betting Resources is one of the most comprehensive collections of expert betting advice anywhere online. Catering to all experience levels our aim is simply to empower bettors to become more knowledgeable.