Why Arbitrage Betting Is Possible
The basic principle of arbitrage betting is a simple one. The idea is to place a series of bets on all the possible outcomes of an event, using a combination of odds and stakes that ensures you are guaranteed to make a profit regardless of what the actual outcome is.
You might think this is too good to be true, but arbitrage betting is a real strategy that does work. In the right circumstances it is entirely possible to make guaranteed returns from your bets. It’s not quite as simple as it sounds though. Many bettors have made the mistake of thinking that this betting strategy is an easy route to untold riches, but the reality is that it takes a lot of hard work and patience.
How Arbitrage Betting Works
As we’ve already explained, arbitrage betting involves placing bets on all the possible outcomes of an event in order to guarantee a profit. In a tennis match, for example, you would place two bets – one on each player to win. In a soccer match you would place three bets – one on each team to win plus one on the draw.
You’re probably already aware that placing such bets with a single bookmaker would actually guarantee a loss, not a profit. This is because of the way that bookmakers set the odds to give themselves a built in profit margin. For a simple example, let’s imagine there was an upcoming tennis match where a bookmaker thought both players had an equal chance of winning. They might set the odds as follows.
A winning $100 bet at odds of 1.91 would return a total of $191.00, including the initial $100 stake. So if you bet $100 on each of the two players, you’d be wagering a total of $200 to get a return of $191.00 regardless of who won. This would represent a loss of $9.
Arbitrage betting is therefore not as simple as just betting on all the possible outcomes of an event. If it was that easy, everyone would be doing it and there wouldn’t be any bookmakers in business. What you have to do is find opportunities where the odds with different bookmakers make guaranteed profits a possibility. Such opportunities are often referred to as arbs.
Using the same hypothetical tennis match as above, it’s possible that another bookmaker would take a different view on the likely outcome. They might make Murray the favorite to win, and set their odds as follows.This has created an arbitrage opportunity. We’ll show you some calculations you can use to highlight when an arb exists later, but please just take our word for it at this stage. You could make a guaranteed profit by betting on Murray with “Bookmaker A” and Federer with “Bookmaker B”.
It’s important to note at this stage that you have to work out the optimal stakes when arbitrage betting. We’ll shortly show you the necessary calculations for this too, but we’ll keep it relatively simple for now and use some round figures. The two bets you would want to make here are $107 on Murray at 1.91 and $93 on Federer at 2.20, again for a total of $200 of wagered.
As you can see, you would make a profit here regardless of which player wins. Although this is only a hypothetical example, it should help you to understand just how arbitrage betting works. We’ve already mentioned that similar opportunities do occur for real, and we’ll now explain why.
Why Arbitrage Betting Is Possible
Arbitrage betting is only possible when the right circumstances present themselves. The odds available on sporting events regularly vary from one bookmaker to another, but there needs to be a sufficient difference for an arb to exist. Such a difference will typically occur for one of the following two reasons.
Bookmakers taking differing views on the likely outcome of an event.
Bookmakers adjusting their odds to create a balanced book.
The first reason is the one we referred to in our example above. Bookmakers tend to set their initial odds based on their views of what they think will happen in an event, so it is perfectly possible that two bookmakers will set different odds if they have different opinions about how an event is likely to turn out. If their opinions are different enough that there is a significant disparity in the odds that they offer, then an arbitrage opportunity may well exist.
Although a bookmaker’s initial odds may reflect their views about an event, they will subsequently adjust those odds based on the wagers that they take. If they take a lot of wagers on one particular outcome, they will almost certainly reduce the odds on that outcome. At the same time they will increase the odds on the other outcome (or outcomes). This helps them to reduce their exposure to risk, and it can also lead to a notable difference between the odds available at different bookmakers.
There are some other reasons why arbs occur, but the two mentioned here are easily the most common.