Arbitrage theory

7. Arbitrage Trading on Betfair

Beyond question, the phenomenon of sports exchange has made a revolution in the area of sports betting. It has been claimed by many that the sports exchange bookies have brought on much corruption as well as insider trader; this may be a valid point, of course, but let us look at the brighter side of the cloud! Sports exchange has become a source of power for mere mortals amidst the gamblers. Any given exchange marker is very tight, bordering on under-round – which gives you an instant victory guarantee! Also, exchange is possible for a way bigger amount of events – and you can reach them anywhere (and from anywhere) in the world. This is a stable business that isn’t going to disappear anywhere in the visible future. It is unfortunate that, for example, Betfair takes quite a high commission… but I don’t think the majority of the users mind a lot even so. A lot of cash circulates in any such market, and the more a single player gets, the less will be left – plain logic. So here’s example of how important the commission you pay is for your own profit.

We’ve talked about ‘each way arbitrage’ already, with examples, too. So, let us take a familiar number: 500 pounds each way and the rest. Imagine the commission in this case is 2,5%. And, of course, you want to get an equal sum of money no matter who wins. If we’re talking about horse racing… well, you can place 500 on the horse winning and 574 on it being placed. Then, if it wins, you get 74, and if it is merely placed, you get 62. You also get 47 if the horse doesn’t even get placed. Sounds good, huh? But if you had to pay a 5% commission, you’d only get 74/49/21. The very first number remains unchanged because when you bet with the bookie, there’s no commission. But with the other two cases ,well, you get over 50% deduction in case the horse isn’t placed. And this… well, doesn’t sound all that good anymore.

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They always argue that the prices are still a whole lot better with an exchange, but this is not always true. The first few betting priced in the majority of horse races do not differ from the ones you can get at a regular bookmaker’s office, or they can be worse – anyone will tell you this. The pros outweight the cons, of course, there can be no doubt that they do, but I think personally that it would be nice if Betfair watched their doing better when toying with the commissions and giving their users lesser deals because of this. The last time they acted in an especially outrageous manner some gamblers left them, although, well, not much. However, it just means that the final nail simply hasn’t gone into the coffin yet. Betfair most certainly is the leader in its niche, but others are able to meet competition, too, one way or another. So, if Betfair goes on and on magnifying the commissions and introducing expensive red herrings such as a casino here, a poker room there – well, one day it is all going to backfire. Now – back on topic!

When I tried arbitrage for the first time, it was between exchanges. I found out that, even though just about all other exchanges had been seeded already, there were some rather significant maladjustments, which gave room to some healthy arbitrage deals. Speed was crucial here – and for this purpose I ordered software that could robotize the trades. The bigger part of my arbs occurred between Betfair and Tradesports who are somewhat more independent about pricing unlike other bookies who seem to mostly bear on the prices Betfair sets. Tradesports were receiving more funds from the US, though they could allow their prices to differ a lot from others, especially with the US sports events. I was one of the first to come to this trade, but then other arbitrageurs discovered its charm and things stopped being so easy.

Yes, of course, today the number of interexchange arbs has decreased, but if you’re quick you’ll still catch some. Also, there are more exchange services as such nowadays, although in some areas there’s still a single reliable option, such as Betfair when it comes to horse racing. Actually, to be successful in this area you’ll have to download some specially meant for this purpose software because if you try to find an opportunity yourself, than recognise it, make the necessary calculations and get your trades going, there will be no more arbitrage. There can be exceptions, naturally, but they are few. With the software, however, you can get arbs every day, especially if you use the so-called synthetic arbitrage possibilities. I’m talking about combining a bookmaker deal with an equivalent exchange one.

There are plenty of regular traders, hundreds of them, using the exchange services daily – each with his or her very own gambling technique. There are even software ‘bots’ for sale, some of which, however, use the world arbitrage completely wrong. The majority of bots have simplistic algorithms that won’t help you much. For example, when you compare the sum of money on the bet side to the money on the lay side, in case of an extreme disbalance you place your funds with a view to the market moving onto the possibility of several ticks profit soon enough. This technique is known as ‘scalping’ and was extremely useful some years ago, but nowadays the markets have grown in their efficiency and made it harder to ‘scalp’. Because many people know about scalping nowadays, some guys have started to load one of the sides on purpose in order to catch the traders folk out. I must also note that the users of such sites and services are evolving, as well, becoming more circumspective. Instead of pushing everything they have in, they feed it to the service drop by drop so that they don’t frighten their rival off or draw unnecessary attention to their own actions. Betfair even provides special software to simplify this procedure for their users.

The better part of the really brilliant traders I’ve attribute their success to their own great specific knowledge of their sports of choice. They can use any soft if they have develop sufficient speed – they simply always know what they’re doing! Knowledge is truly the most powerful weapon when it comes down to it, unless you’ve got an idea how to outspeed your rivals, because, as it has been told several times already, whereas there are other things of extreme importants in arbitrage, speed is key. For instance, there are still many gamblers who take their cells and even their laptops with them when they go to watch a horse race. It’s a working technique all right, and these guys can be fought only by developing a bigger in-running delay than the current one in the exchanges. This has already happen for certain soccer matches, so – anything is possible!
You can meet plenty of people dreaming to give up their day jobs and become full-time traders in the exchange forums. After all, they hear you can earn millions in this business! Well, some do make fortunes, but not because of bots or other software pieces. These traders are gifted, hard-working, and they know what they are doing.

Creating  an Arb

What makes exchanges so great is that they allow for the possibility to offer your prices on either side of the existing market – prices that will give you a surefire opportunity of an arb if they are accepted, as well. Nowadays this is how I make most of the profit. Here is an example: news leaks that there’s a bookie who currently offers Team 1 at 3.2. You go to the exchanges – and they’re trading the same at 2.8 – 3.2. So why don’t you offer your own lay at about 2.85 and look for the takers? If someone comes across, you just move really fast to a book of your choice and bet there. Using this technique, you can achieve some pretty high arbs for sure. You simply need to achieve the widest spread now possible between your bet and your lay – and this is here you get right inside the spread!

If you develop a healthy interest for this kind of arbs, you’ll easily find a lot of opportunities. But here it is almost necessary to get the specialist software that will make everything simple. It is best to find a coder from Elance, Rentacoder, Getacoder or another site like that. Hire a guy and tell him what you are looking for – and you’ll get your own unique soft. It is best to look for opportunities in the area of the sport you know best.
All in all, it is always more profitable to choose a weaker market as a strong one offers tight spreads and prices that almost mirror those that prevail at the books. This means that time once again is the matter: you need to get into a market while it is still young to wring everything you can out of it. A word of warning: avoid offering more at the exchange services than you can easily work with at a bookmaker’s site.

When you traded an arb with one leg layed on an exchange and another backed outside of it, you need to look after the exchange price for potential possibilities to use it for another arbitrage deal. This will make the overall commission smaller, but you can use the funds as though they are tucked away in your own account – as a matter of fact, they kind of are. For such situation to take place you need to act well before the event actually starts.

For example, if you take 500 pounds and back Player 1 at 2.30 at a bookie, then lay the very same Player at 2.10 at an exchange service, paying 560, you will have a 616 exchange liability in case of the player’s victory – and win 650 at the bookmaker’s site, receiving a 34 profit total. Follow this player’s price changing gradually and search for a market where you can create one more arbitrage deal. You can also make a similar trade at the same market.

However, there’s always the chance of the price returning to 2.30 at the exchange site. There are two ways of action here. The first will be backing your chosen player for around 50 at the newly existing price, thus reducing your gain along with the commission fees yet keeping your gross profit whole and safe in case of his victory. The second means going to Set Betting or another similar market. Set Betting may offer 1.85 for Player 2, so backing Player 1 at the new 2.30 price for something like 473 pounds will give you a zero liability; at the same time, you will use 571 at Set Betting and thus create a new, 2.5% arb (the percentage here is given with a glance to the 5% commission charge). See? You’ve got two arbitrage deals, your commission is almost zero… A gambler’s paradise! When you’ve got a liability on an exchange, you still have access to the money – you just need to be creative with it. It’s especially great to use such a technique in case of a long term sports event.

What you need to learn is to think more freely, creatively, erase the limits. Look at the markets; see all the interrelations they’ve got. Think of the new ways to be productive with your funds. Backing and laying are simple trades, and those are also what most people do. Don’t be like most people. Be like you. Arbitrage can give us a lot more than the obvious!

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