What Is Arbitrage?
Arbitrage is a strategy leveraged in various sectors and areas, including financial markets, gambling markets, currency exchange and even retail. Simply put, arbitrage means leveraging differences in prices, rates or odds in two different markets to make a profit.
A very simple version of it seen online is buying a heavily discounted product on an eshop to then sell it at a higher price, pocketing the profit. When we talk about financial arbitrage, it’s the act of buying a security in one market and then immediately selling it in another market to make a profit.
This differs from the usual “buy low, sell high” strategy because it is instantaneous and thus takes advantage of discrepancies between markets and platforms rather than the natural ebb and flow of the prices.
When it comes to sport and other betting markets, arbitrage relies on odds instead, and is a common issue faced by iGaming operators.
What Is Arbitrage Betting?
Sometimes dubbed “surebets” or “sure bets”, arbitrage betting is the practice of making a profit by covering all possible outcomes of an event through carefully calculated bets placed with two or more bookmakers.
An arber can place odds for all outcomes at different betting companies and will walk away with a profit regardless of the result because arbing is not gambling but pure math.
As the returns are minimal – 98% of arbs return less than 1.2% – this strategy either requires wagering large sums or a lot of smaller ones that add up quickly, to be worthwhile.
The most common form of arbing betting involves wagering for an outcome on one exchange and betting against it on another, which is a form of hedging. Betting arbitrage opportunities pop up all the time but disappear quickly, so most people use some sort of dedicated monitoring service to spot opportunities.
For betting operators, arbers are always a net loss. If they spot an account practicing it, they will cancel the bets or close the accounts.
How Does Arbitrage Betting Work?
- Find an available event that offers two outcomes.
e.g. 1.2 at bookie A for a team to win, and 8.0 at bookie B for that team not to win.
- Pick a value that you want the final winnings to be.
- Divide that amount by each of the two odds. This shows you how much to bet on each result.
In our example, $50 ÷ 1.20 = $41.66 and $50 ÷ 8.00 = $6.25
- Add each of the results together. The sum is your investment (aka outlay).
($50 ÷ 1.20) + ($50 ÷ 8.00) = $41.66 + $6.25 = $47.85 is your investment, in this case.
- As long as the winnings figure you have set is greater than the investment, this counts as an arb.
$50 is more than $47.85 so this works as an arbitrage bet.
- If you did the calculations right, you will always have the same profit regardless of the result. You place the bets and wait for the profits to come in.
No matter the result, you will win $50 in the example above.
Arbers will try to find the best odds offered by different bookmakers to spot an opportunity and make both bets right away, using some basic math to ensure they remain risk-free. Typically, they either use much larger amounts to make some nice returns, or they will space their bets out to avoid triggering any alarms.
Since arbitrage betting does not involve any level of chance, most bookmakers do not allow it on their platforms.
Arbitrage betting is risky because the bettor’s account can be limited or closed, so advanced arbers use in-between people to place their bets for them while they make the calculations in the background. However, this latter practice is also against most bookie T&Cs.
Sometimes, arbers will look for free bets (sign-up offers, bonuses or otherwise) and leverage those, in which case they are engaging in matched betting.
Is Matched Betting a Type of Arbitrage?
Strictly speaking, matched betting involves arbitrage. However, the major difference is that traditional arbers use their own money.
They may both use mathematical formulas to go for certain profit over leaving it to chance, but matched bettors rely on sportsbooks, eSportsbooks and other bookmakers’ free bets to make money, effectively defrauding the bookie.
This is why matched betting is a much more serious concern than traditional arbitrage for iGaming operators.
3 Examples of Gambling Arbitrage
The practice of betting on one outcome at one bookkeeper and against it with a different amount at another. This can secure a profit, regardless of the outcome.
Backing multiple outcomes (using different bookmakers) for an event in, say, football or horse racing. The stake is split so whichever event wins, the profit is guaranteed.
Arb based on the news
Before any important match, news comes out that could alter the performance of one team against the other. Most bookmakers quickly readjust their odds, except for one. Laying against that bet quickly offers a profit.
Is Arbitrage Betting Legal?
Arbitrage betting is not illegal, but bookmakers try their best to stop it. While operators cannot technically take away the profits that are made, they will try to limit accounts and cancel bets to halt arbers.
This means that even for low-lying, profitable arbers, not all risk is eliminated: They are playing a cat and mouse game with the bookies in order to not get caught – or “gubbed”.
Other Types of Arbitrage Fraud
In recent years, fraud fighters have seen several new types of arbitrage-related scams and exploits:
- Food delivery arbitrage: Enterprising restaurant owners take advantage of ordering platforms’ subsidies to order from their own eateries and pocket the profits.
- Currency and cryptocurrency arbitrage: Currency arbers take advantage of different exchange rates or different spreads on different exchanges to buy and sell for riskless profit.
- Amazon and other retail arbitrage: Buying low and selling high is not necessarily a scam, but merchants still want to prevent this practice, which loses them individual shoppers (the buyers they were hoping to attract).
- Cross-border arbitrage: Someone buys a product cheap in one country/locale, then sells it in another country for a profit. Thanks to the internet, making such transactions quickly does not even necessitate physical travel, while it can also involve some level of triangulation scheme.
The concept of arbitrage betting comes from mismatched betting odds. Similarly, other types of arbitrage fraud take advantage of mismatched prices, often through offers, to make a profit.
Depending on how this is done, where and which companies or organizations it involves, this can be anywhere from legal to unlawful to, more often, a gray area.
Everyone involved in arbitrage that is not the arber (the original seller/provider and the buyer) tends to lose out because of this strategy, and thus has a vested interest in stopping it, even when it is not outright illegal.
Generally speaking, problematic instances of arbitrage are those that involve someone capitalizing on offers, bonuses and freebies intended for individual consumers, using them to make a profit.
How Do You Stop Arbitrage Fraud?
Betting operators rely on various monitoring techniques to catch instances of betting arbitrage – and the same goes for companies at risk of other types of arbitrage fraud.
Efficient tactics to identify and stop arbers involve setting up rules to conduct behavioral analysis. They actively look for players making large bets, bets with weird amounts or on odd markets, especially so when the bettor’s account has an unusually – and statistically improbable – long winning streak.
Some of the methods to stop arbitrage fraud also involve targeting the way it is committed. For example, identifying and banning arbitrage bots scripted to place bets or make purchases instantly, without human intervention, can be done through device fingerprinting, rate limiting, IP reputation tracking, and other techniques.
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