Arbitrage is actually a term derived from the world of the financial markets and economics and in very simple terms is a way of guaranteeing a profit by taking advantage of price differences between markets. For example, if you can buy gold for $1000 an ounce and instantaneously sell it for $1050 you can make an instant and risk-free profit.
In the world of gambling it works in a very similar fashion and arbitrage betting (also known as arbing or sure bets) is theoretically a risk free way of making easy money. Imagine a two horse race where most bookies think Daring Dave will win and as such price Bonkers Bob at 21/20. However, some bookies think Bonkers Bob is the favourite and they offer odds of 21/20 on Daring Dave. If you bet £20 on each horse then no matter what happens you will make a £1 profit.
Of course, that is a hugely simple example and you would rarely, if ever, find such a straightforward arbing opportunity. More commonly one or more bookmaker may be slow to react to a change in the market and their out-of-line price will facilitate an arb. For example, say the day before a Test match the weather forecast changes from five days of sun to three days of showers and two days of downpours. If the draw was originally priced at odds of 3/1 it may now be priced at evens given the new forecast.
If the bookie is aware of this forecast early they will change their odds accordingly but more than likely a canny bettor or two will hear first and will place large bets on the draw at the excellent price of 3/1. This forces the odds down and may raise alarm bells with the bookie who then sees the forecast and changes the odds. Not all bookmakers will react at the same time however and the devices that will probably react quickest are the betting exchanges because they have thousands of eyes monitoring them, unlike the bookmaker. And so an arb is born…
Dutching or Laying
One can profit from this situation by backing the draw where it is available at 3/1 and then either laying the draw at a betting exchange, perhaps at 5/4 or by Dutching it with other bookmakers who have changed their draw price to evens but now consequently have the two other sides at far higher odds. Laying is using a betting exchange to bet against an outcome, Dutching is using other bookmakers and/or the exchanges to back all available outcomes.
Arbitrage Sounds Too Good to be True
There is some easy money to be made, of that there is no doubt and the main reason is that there are so many different bookmakers and exchanges around nowadays that price differentials and time lags are inevitable. However, arbing is not as easy as it sounds for a number of reasons.
Problems and Risks with Arbing
- Arbs are not easy to find and don’t last long because more and more people are looking for them and snapping them up in double quick time
- Bookmakers are quick to limit and ban people who bet on their out-of-line prices
- You need a large amount of cash for a small return and one mistake can wipe out months of profit
- Odds can change quickly and what is at one moment an arb can quickly become a loss-making bet