Arbitrage Betting - Arbitrage in Practice

Arbitrage in Practice

While often claimed to be "risk-free", this is only true if an arb is successfully completed; in reality, there are several threats to this:

Disappearance of arb: Arbs in online sports markets have a median lifetime of around 15 minutes, after which the difference in odds underpinning them vanishes through betting activity. Without rapid alerting (Surebet Monitor services or software) and action, it is possible to fail to make all the "legs" of the arb before it vanishes, thus transforming it from a risk-free arb into a conventional bet with the usual risks involved. High street bookmakers however, offer their odds days in advance and rarely change them once they've been set. These arbs can have a lifetime of several hours.

Hackers: Due to the large amount of accounts that have to be created and managed (containing personal details like eMail, name, address, eWallet, credit card info etc.), arbitrage traders are highly susceptible to cyber fraud, such as bank account theft. While making deposits is usually made easy and quick, making withdrawals always requires proof of identity in the form of passport/driver license, which need to be shared with the bookies via fax/email or even postal mail, which causes additional identity theft risks. It is estimated that at least 20%-30% of all arbitrage bettors fall victim to some form of cyber crime. Traders are often attracted to high odds comparison sites that yield high percentage profits per stake(5-30%), this is often used by hackers to lure a high number of arbitrage bettors that then place large sums of money on these arb's, only to lose all of the profit and even entire savings in bank accounts to hackers or untrustworthy websites, which may further use the gathered data to sell personal data to criminals.

Making errors: In the excitement of the action and due to the high number of bets placed, it is not uncommon to make a mistake (like traders on financial markets). For example the appropriate stakes may be incorrectly calculated, or be placed on the wrong "legs" of the arb, locking in a loss, or there may be inadequate funds in one of the accounts to complete the arb. Those errors might temporarily have an important impact. In the long term, the benefit will depend on the odds. For example one could actually make more money by placing the "wrong" bet where the outcome happens to be beneficial, though not justified by the arbitrage calculation. However, this stroke of luck being repeated is unlikely, assuming the bookies have calculated the odds so they make a profit. In some sports different bookmakers deal with outcomes in different ways; e.g. player withdrawal due to injury in tennis, treatment of overtime in ice hockey, meaning that both "legs" can lose. Matching terms for all bookmakers is time consuming.

Detection: There are only very few bookies who openly tolerate arbing (such as for example pinnaclesports.com). Many bookmakers may now be using shared security servers in order to pinpoint people suspected of arbitrage betting, they can simply limit stakes to make arbing unprofitable and even close accounts without honouring a bet that was placed. Loss of deposited money into a bookmaker could occur. This usually leads to unprofitable arbing as the most successful bookmakers are so adept at identifying arbitrage bettors, without these countermeasure the gambling industry would not be able to generate a large overall profit consistently every year.

Bet cancellation: If a bettor places bets so as to make an arbitrage and one bookmaker cancels a bet, the bettor could find himself in a bad position because he is actually betting with all the risks implied. The bettor can repeat the bet that has been cancelled so as minimize the risk, but if he cannot get the same odds he had before he may be forced to take a loss. In some cases the situation arises when there are very high potential payouts by the bookie, perhaps due to an unintentional error made while quoting odds. Many jurisdictions allow bookmakers to cancel bets in the event of such a "palpable" error in the quoted odds This is often loosely defined as an obvious mistake, but whether a "palp" in fact has been made is often the sole discretion of the bookmaker.

Other problems:

• Bookmakers who encourage responsible gambling will close accounts where they see only large losses, unaware that the arb trader has made wins at other books.
• Capital diffusion is serious; many bookmakers make it very easy to deposit funds and difficult to withdraw them. Making a return involves many bets spread over typically many bookmakers so keeping track is a considerable challenge, and requires excellent record-keeping and discipline.
• While there are commercial software products and web services available to help with some of these tasks, these are usually still fairly complicated tools which also further lower the total RoR because of the initial investment required, or even the monthly subscription fees involved.
• Arbers using software tools or web services to find arbs, will often make an existing arb even more prominent and obvious to the bookie because of the number of arbers placing bets on the same outcome, so that the lifetime of an arb found via such tools is often even much shorter than the average 15 minutes. Thus, the risk of seeing bets revoked is also often much higher for arbs found via such tools than for arbs found manually, that are not shared with other arbers.
• In addition, arbing often involves making use of bookie bonuses, these however, usually need to be turned over a number of times before a bettor becomes eligible for withdrawal, which may further reduce his total liquidity.
• Foreign currency movements can wipe out small percentage gains and can make quick calculation of stakes difficult.
• Transferring funds between bookmakers and eWallets may create additional costs at some point, most bookmakers and/or eWallets limit deposits to certain amounts per month.
• Withdrawals are often limited to a certain amount per month or to a certain number of free withdrawals per month
• Withdrawals are often charged for, not just on the side of the bookie, but sometimes also on the eWallet side (transfer to the bettor's bank account).
• In some countries, additional costs are caused by government taxes, so that the final profit is further reduced by a fixed percentage of say 5%.
• Professional arbitrage betting may eat up considerable time and energy and requires lots of experience and liquidity, as well as sufficient funds to recover from inevitable losses that will happen sooner or later due to some of the aforementioned reasons.
• Typically, arbs have a profit margin of only 2-5% - many other arbs are so called "high risk" arbs ("palps"). Accordingly, profits accumulated through 20-40 successful arbs can be quickly lost just with a single failed arb.