Arbitrage Betting Explained

Arbitrage betting explained…simply

Arbitrage betting promises risk free returns (sounds too good to be true, right?), so it’s naturally a popular topic among the betting community.

But exactly how does arbitrage betting work? We’ve got you covered in this article.

What is Arbitrage betting?

Arbitrage betting exploits the opportunity to strategically place bets on different outcomes of the same event with different online bookmakers to ensure that a profit is made regardless of the outcome of the event.

Any type of risk-based activity is a search for price-differential, and in the end, profit. If you can buy stereos from Factory A for $20 and sell them to Store B for $30 you can pocket $10 without risk.

A large % of profit generated by investment bankers is based on this same principle (albeit in a much more complex form) across a huge array of assets and commodities.

Arbitrage betting by comparison is much closer to the simple stereo example stated above, and is a strategy used by many sharp bettors to make risk-free profits.

We let Pinnacle explain what arbitrage betting is, because the go-to guys here – 

Read our Pinnacle review

Example of an arbitrage bet

The easiest way to explain arbitrage betting and how it works is with an example.

Take the odds on an NBA game between Team A and Team B offered by two imaginary bookmakers (A & B) – as shown in the table below.

Team A Team B Margin Stake Profit
Odds Bookmaker A (BA) 1.30 3.93 102.4% 26.54 4.30
Odds Bookmaker B (BB) 1.42 2.90 104.9% 73.46 4.31
Arbitrage (Combining Team A/BB & Team B/BA) 1.42 3.93 95.9% (4.1% profit margin) 100

The margin is indicated for each bookmaker – the edge in their favor (Pinnacle have the best online margins we’ve come across).

By cross-matching odds from Team 2 at Bookmaker A (3.93) with those for Team A at Bookmaker , (1.42) the margin is in favor of the bettor, with a guaranteed profit of 4.1% (100 – 95.9 = 4.1).

It’s important to note that your stake must be in proportion to the odds as shown in the table, which gives a guaranteed return of $4.30 whether Team A or Team B should win the game.

This principle is applicable to any sports betting market, beyond just two selections, including spread/line betting, with applications in live-betting where opportunities for arbitrage are always available by laying and backing in an always shifting market.

Why and how do arbitrage opportunities arise?

It’s important for to understand how and why arbitrage opportunities occur.

These are the 3 main reasons:

  1. Bookmakers differing in opinion of a market.
  2. Bookmakers taking a specific position or running a promotion on a market.
  3. Bookmakers slow to adjust their odds or simply making a mistake on the odds of a market.

Number 1 is the most common situation.

Potential pitfalls of arbitrage betting

If you are now itching to get out there to make an risk-free profit from arbitrage betting, it’s probably good time for a reality check…there is no such thing as a free lunch.

Though the maths of arbitrage is solid, there are definitely risks involved in the process of successfully finding and placing the right bets.

Here are some important things to consider before starting your arbitrage journey:

Stake limitation & account closure

Bookmakers all have different limits, which can hinder the ability to properly execute an arbitrage opportunity. This isn’t an issue at Pinnacle, who offer the highest online betting limits.

Certain bookmakers hate arbitrage players as they don’t fit their desired player profile of a losing bettor.

The may also ban you.

Bet cancellation

Bookmakers have the right to cancel bets when they believe a mistake have been made with odds on their side, which can leave you exposed at the other end. This can wipe out your profits. Take a close look at the Terms and Conditions for each bookmaker you intend to use for arbitrage betting.

Complexity

To make the most of arbitrage betting, you’ll need to have a selection of funded betting accounts (we recommend 5-10), as well as the time it takes to take full advantage. Believe us, it takes up time.

Arbitrage betting involves a hell of a lot of organisation, time and effort.

Many bettors practice arbitrage betting for a living (financial arbitrage), where time invested is also measured as a cost. There are a fair few services out there that will do the hard work of finding arbitrage opportunities for you, but they will charge a fee which digs into your profit margins, and still don’t eliminate all of the risks that we’ve outlined here.

Short-lived Arbitrage Opportunities

Bookies are always updating their odds, often using other bookmakers as a benchmark.

Because of this, arbitrage betting opportunities tend to last seconds rather than minutes so time is critical, and when humans are pressured by time, inevitably errors occur. Arbitrage software programs can help, but cannot guarantee that you won’t be left with a naked position. In other words, you cannot cover all the bet options so risk is inevitable.

Value Betting vs Arbitrage Betting

Some bettors argue that arbitrage just exposes bookmakers mistakes on odds, and because of this, the value is in solely betting on the ‘wrong odds’.

To put it simply, it’s a case of  – Finding a market that you like with the best odds/value available vs betting on both sides of the market after much time spent shopping for odds.

Arbitrage Betting – How to get started

If you’ve come this far you should have enough information to get started.

If you want to take the next step then it’s probably best to start with a Pinnacle account, because having the best odds online along with an arbitrage friendly policy means that Pinnacle features more arbitrage opportunities than other bookmakers.