What is sport arbitrage? How to build a bank.

By | 25th September 2018

 

We all know that you need money to make money, but for those starting out, is there a way to trade on financial or sports markets to try and build a bank? The answer is yes, and it’s called sports arbitrage. It is possible that we can use a small amount of capital, and increase in multiple times by taking advantage of market inefficiencies. This is a great way to start with a small bank and build a bank, but it is not a long-term effective money making scheme (this is the part other sites leave out which we will get back to later!)

The next question is, what is sports arbitrage?

There is a saying from the financial markets that if you earn more return, you must bear more risk. While this may be true for individual stocks and bonds, there is arbitrage. In finance this is when we buy or sell the same asset at different prices, taking advantage of different prices in different markets. We can do the same thing with sports markets, and in the UK, Germany, Spain, Russia, Belgium, Canada, and many more countries are available in the sports markets via betting exchanges. In effect, arbitrage is taking advantage of the inefficiencies mentioned previously.

The third question is what a betting exchange is?

A betting exchange is a market which brings together the buyers and sellers (backers and layers) of gambling outcomes. Rather than going to a bookmaker and asking for a price on Manchester United to win their next match, there are also other people willing to give you odds online. There are different exchanges, but the most well established is Betfair.

In these exchanges, we can not only get odds on Manchester United to win, but we can also get odds on them to lose, a lay bet. So, what we hope for, is that the back odds or less than the lays odds. However, it’s not as simple as going onto the betting exchange, as it is impossible for the same exchange to have a higher back price versus the lay prices. However, a bookmaker may have and often does.

It may be difficult to imagine trolling through different prices looking for inefficiencies, but the good news is that there are websites that tell us of these inefficiencies, saving us lots of time. A good one that I recommend, solely from using them is OddsMonkey! For a small fee they give you access to numerous sports markets, there are others, many come with free trials, make sure to try before you buy with other sites.

So basically, Oddsmonkey tell you the inefficiencies in the markets and give you the bets to put on, they also have a calculator to make you put the exact amount on, you then make a small percentage based on the trade.

To give you a typical, at the time of writing this article, September 26th 2018, later that night, there was a game in the Italian Serie A, Juventus v Bologna, BetVictor has Bologna priced at 31 and Betfair at 28. I then made my first trade of the day, I placed, £200 on Bologna to win at 33 and placed a lay bet for £236.14 on Betfair for Bologna to lose, making an after commission profit of £24.22. Not bad for 20 seconds of work.

Ok, to the bad parts, there’s no such thing as a free lunch, still holds true for statistical arbitrage. As PhD students, we are generally busy day-to-day with writing papers, evenings and weekends we work on the systems, so arbitrage trading is left for Champions League games during midweek nights. However, before the trading systems, this was how we started out and built our banks! We started with a bank of £1000, and with this, the trades have to start small. However, your bank can quickly grow.

This first bad thing is that its boring. Yes the first few trades can be interesting and enjoying your profits is nice, but the example above is an extremely good trade, and we normally work on margins much smaller, say £6-8 profit on £200 bets, the good thing about this is that there are lots of games to place the trades on, especially when we lower our earnings estimates.

Another bad thing is getting shut down. A big win in your bookmaker account may lead to your account being closed. After years of doing this, we have never lost money via an account closure, although we have heard of people losing money. We have always still able to withdraw any money if you provide ID and proof of address etc., but it does mean on more trades. Whilst this seems bad, there are literally 100’s of bookmakers so you can just open another one. As Betfair Exchange is market-based, you only get shut down for breaking terms and conditions, i.e. transferring money to friends via betting etc, but for placing trades, we have never had a problem.

To limit the chances of being shut down try and keep your trades to sports and teams that you know. My rule is, if I don’t recognise the sides, I don’t place the trade. Betting on the Russian 2nd division is a quick way to get shut down.

Making a mistake is possible, and this has happened to all of us at some point. You thought you placed a lay bet on Betfair but forgot to press confirm, it happens to all of this, always double check your trades, make sure you don’t trade when you’re tired and if the worst does happen, don’t get to bogged down by it and carry on trading to make sure you make your money back.

Will this last forever. No, there are lots of bookmakers but you’re looking at turning a £1000 bank into a £5000 bank within a year or so’s trading and then moving on to more complicated systems trading, which is where we make our money.

What about bonuses?

Bookmakers do offer bonuses, but to around £100 maximum per bookmaker, and are fraught with pitfalls, read the terms and conditions correctly. These are a great kick start and you can email to ask us for a free information sheet on the best way to extract the bonuses!

 

One thought on “What is sport arbitrage? How to build a bank.

Leave a Reply

Your email address will not be published. Required fields are marked *