Arbitrage and trading tutorials

In addition to the examples, analysis and betting glossary provided by the Arb Cruncher site, we have also prepared some introductory tutorials about arbitrage and trading.

Arbitrage tutorial

What is arbitrage betting?
Book arbitrage
Book arbitrage example
Book arbitrage example screenshot
Back/Lay arbitrage
Back/Lay example
Back/Lay example screenshot
What is the difference between arbitrage and trading?
How do I identify an arb?
How do I find arbs?
How does commission affect the book percentage?
Are there any other risks associated with arbitrage betting?

Trading tutorial

What is trading?
Specifying your trading sequence
Commission settings for trading
Trading example
Trading example screenshot
What is the Lay Bet Liability?

Arbitrage tutorial

What is arbitrage betting?
An arbitrage opportunity occurs when price discrepancies allow you to place bets that cannot lose. There are two types of arbitrage. You can either back all possible outcomes in an event (Book arbitrage), or back and lay the same selection at different prices (Back/Lay arbitrage).

Book arbitrage
A book arbitrage opportunity is available whenever the book percentage for an event is under 100%.
Due to the proliferation of online betting sites and the improved value provided by betting exchanges, underround books are now occurring on a regular basis. The emergence of odds comparison sites has made life even easier for arbhunters.

Once you have found an underround book, however, you still need to work out what sort of stakes to place in order to obtain a guaranteed profit. That's where Arb Cruncher comes in.

Book arbitrage example
Bookmaker A offers 2.20 for Borg and 1.72 for McEnroe. Of course, you cannot make a profit by backing both players at these prices, as the book percentage is 103.59%.

However, if Bookmaker B offered 1.91 for McEnroe, you would then have a book of 97.81%. This means that you can earn a guaranteed profit by backing Borg with Bookmaker A and McEnroe with Bookmaker B. Let us assume that you want to spend £500 on this arb.

1.	Open the Multiback calculator.
2.	Enter the bet details (both prices and your total stake) in the white boxes, and click the Calculate button.
3.	Arb Cruncher instructs you to place £232.36 on Borg and £267.64 on McEnroe. These stakes guarantee you a profit of £11.19 whichever player wins.

Where does this figure of £11.19 come from?

If Borg wins, you would win £278.63 with Bookmaker A (1.20 x 232.36) and lose you stake of £267.64 with Bookmaker B. The difference between these figures is £11.19.

On the other hand, if McEnroe wins, you would win £243.55 with Bookmaker B (267.65 x 1.91) and lose your stake of £232.36 with Bookmaker A. The difference between these figures is also £11.19.

Book arbitrage example screenshot
This is a screenshot of the above back arbitrage example. You can obtain the book percentage by just entering the prices and clicking Calculate. There is no need to select or enter any stake constraint.

Back/Lay arbitrage
You can also arb between a selection's Back price and Lay price. This is possible whenever a bookmaker prices up a selection at a higher price than the Lay price available for the same selection on an exchange.

Bookmakers can be slow to adjust the price of a favorite whose price is plummeting on the exchanges, allowing you can to make an easy profit by backing high with the bookmaker and laying low on the exchanges.

Back/Lay arbitrage example
The Lay price of a horse called Steamer has dropped rapidly from 9.00 to 7.50 on Betfair. However, Paddy Power is still offering 9.00 for the horse. There is a huge amount of liquidity available at this price, but Paddy Power is only accepting bets up to £250. Your Betfair commission rate is 4.4% and you would like to exploit this arb to the full.

1.	Open the Multilay calculator.
2.	Click on Back and lay on same betting exchange to disable it and activate the commission boxes for the Back and Lay bets.
3.	Enter the bet details (both prices, your Betfair commission rate and 250 as the stake for the Back selection) in the white boxes, and click the Calculate button.
4.	Arb Cruncher instructs you to lay Steamer for £301.77 on Betfair. This guarantees you a profit of £38.49, whether the horse wins or loses. If Steamer loses you will win £288.49 from the Lay bet because Betfair's 4% commission of £13.28 will be deduced from your winnings of £301.77.

Where does this figure of £38.49 come from?

If Steamer were to win, you would win £2,000 (250 x 8) from Paddy Power, but you would also have to pay out £1,961.51 (301.77 x 6.50) on Betfair. The difference between these figures is £38.49.

On the other hand, if Steamer were to lose, you would collect the backer's stake minus commission of £288.49 (301.77 - 4.4%) on Betfair and lose your stake of £250 with Paddy Power. The difference between these figures is also £38.49.

Back/lay arbitrage example screenshot

What is the difference between arbitrage and trading?
An arbitrage requires the concurrent availability of all prices. For example, backing a horse with a bookmaker in the belief that its price will fall on the exchanges is an example of trading. However, backing a horse with a bookmaker when it is also currently available to be layed at a lower price on an exchange is an arbitrage.

In other words, an arbitrageur exploits existing price discrepancies, while a trader anticipates price movements.

How do I identify an arb?
An arb is available on an event when its book percentage is below 100%. The book percentage is the total of all the probabilities represented by an event's prices. The total of the mathematical probabilities in any single-outcome event is always 100% (Heads 50%, Tails 50%). Each bookmaker's book is always over 100% (overround) because of the profit margins built into his prices. However, you can often obtain an underround book by taking the best available prices from different bookmakers.

How do I find arbs?
There are 4 ways of finding arbs:

Find by yourself

Scour betting sites and odds comparison sites to find your own underround books. The trick is to look for early prices that have not yet been adjusted. For example, underround books can often be found in the early prices quoted for first round tennis matches. These matches are normally priced up by WHill, Stan James and Bet 365 on Sunday. Betfair will also have markets in the matches available on Sunday. Place your bets on Sunday, as any underround books are highlighted by Monday morning's Racing Post, prompting a realignment of bookmakers' prices. 2-balls and 3-balls in golf are another rich source of early underround books.

From odds comparison sites

Many odds comparison sites now have special "surebet" sections that list underround books. Most of these are automatically generated, so care should be taken to check not only the availability of the prices, but also the reliability of the bookmakers quoted and the consistency of their rules. Some of the better known odds comparison sites offering this free service are OddsExchange,BetBrain, Tip-Ex and Crastinum. (Arb Cruncher is not responsible for the reliability or accuracy of the prices or recommendations contained in these sites.)

Sign up to an Arb Alert service

The most expensive option is to sign up to a subscription-based service that delivers notification of underround books either by email or by SMS. Unfortunately, some of these services have acquired dubious reputations. Their use of spiders to trawl the Web for arbs often generates a huge amount of non-existent or illogical arbs. Dates, events and players can all get mixed, rendering the so-called arb meaningless. Even if they do find a valid underround book, the sheer number of their members piling in for their guaranteed profit leads to a rapid price alignment that actually removes the arb opportunity. This self-defeating causality generates frequent complaints from paid-up users about the unavailability of the notified arb. Arb Cruncher recommends extreme caution with these services.

How does commission affect the book percentage?
If you are backing all the selections on the same betting exchange, Arb Cruncher does not factor the exchange commission rate into the book percentage. This is because the commission does not affect the intrinsic value of the prices - it merely operates as a tax on your overall profits.

If, however, you are backing one of the selections on an exchange, Arb Cruncher does factor the commission rate into the calculated book percentage. This is because the commission rate modifies the effective exchange price and could ultimately make the difference between an underround and an overround book.

The example below shows how Betfair commission of 5% can turn what looks like an underround book into a losing proposition, unless you are backing all selections on Betfair.

Are there any other risks associated with arbitrage betting?
Although the prices may guarantee a certain profit in theory, there are a few factors that could prevent the actual implementation of the arb:

Maximum stake limits

Before placing your bets, you should always check that none of the bookmakers in the arb have a maximum stake limit that could prevent you placing your full stake.

Remember that all betting exchange prices are effectively subject to some sort of stake limit, so keep a close eye on the available liquidity at not just the best price, but also the 2nd and 3rd prices in line (just in case all the money at the best price gets hoovered up).

Price changes

Before placing all bets in an arb, check that their prices are still available (don't rely on bookies holding their prices quoted in the Racing Post). Save time by opening several browser windows (CTRL+N), or by simultaneously checking prices on the Internet and by telephone. You should also bet on all legs of the arb at the same time using Internet and the phone.

Prices on the exchanges can change very quickly, so make sure that you place any exchange bets first while the price lasts.

Dodgy bookmakers

Unfortunately there is a long list of bankrupt and fraudulent betting sites that have deprived punters of their legitimate winnings. Arbhunters therefore have to be streetwise in their choice of bookmakers. There are two useful sites that help you identify the more reputable bookmakers:

Sportsbook Review: Assigns rankings to bookmakers (sportsbooks) on the basis of continuous monitoring of service and complaint levels. Avoid bookmakers ranked D+ or less!
Independent Betting Arbitration Service: Provides independent resolution of disputes with UK and Irish bookmakers registered with IBAS. The site contains a list of registered bookmakers that is a useful yardstick of respectability.

You should also keep an eye on messageboards, like Punter's Lounge and Bookiebusters, where punters warn each other of dubious bookmakers.

Different bookmakers' rules

Bookmakers often have different policies for settling bets with irregular outcomes (eg postponed/abandoned soccer matches, withdrawal of tennis players during a match etc). This can drastically affect the success of an arb, so you should check that the bookmakers share the same policies for these events before you place bets with them.

Trading tutorial

What is trading?
Trading is essentially betting on the movement of a selection's price. If you think that a selection's price will fall, you would back it now and lay it later at the lower price. As long as the price moves in the direction that you have anticipated, you will be able to lock in an immediate profit. This trading process can be repeated several times within one event.

You can either wait until the price moves before closing out for a profit, or you can submit an order at an exit price of your choice and wait until it is matched. You can adjust both the price and the stake of your submitted order at any time.

If you are trading on the same exchange, as is usually the case, you do not have to provide funds to cover your closing bet. This is because the exchange automatically treats the potential winnings from your first bet as the stake for your closing bet.

Betting exchange traders also benefit from a reduced commission liability, as commission is payable on your net market profit, as opposed to the (larger) profit from the winning selection.

Specifying your trading sequence
If you are trading on a price rise, you should select the Lay Selection 1 stake constraint, as you will be laying first and backing later.

If you are trading on a price fall, you should select the Back Selection 1 stake constraint, as you will be backing first and then laying off later.

Commission settings for trading
If you are placing both bets on the same exchange, which is the most common and lucrative form of trading, ensure that the Back and lay on same exchange commission option is selected. This lets Arb Cruncher know that commission is only to be deducted from your net market profits, and that you do not need to provide money up front for the closing bet of the trade.

This is the default setting of the Back/Lay calculator, so all you have to do is open Back/Lay and enter your betting exchange commission rate in the bottom commission box.

Trading example
You have already backed a horse called Hotshot on Betfair at 4.00 for £200.00 in anticipation of a price fall. The Lay price of the horse subsequently shortens on the exchange to 2.50, and you want to know how much you should lay it for at that price. The example assumes that your Betfair commission rate is 4%.

1.	Open the Multilay calculator.
2.	Enter the bet details (both prices, the original stake of the Back bet, and the 5% Betfair commission) in the white boxes, and click the Calculate button.
3.	Arb Cruncher instructs you to lay the horse for £320.00 at the new Lay price of 2.50. This stakes locks in a trading profit of £114.00. See the breakdown of this profit figure below.

Back Hotshot
£200.00@4.00

Lay Hotshot
£320.00@2.50

Trading Profit

Hotshot wins

+ £600.00

- £480.00

£120.00

-£6.00

£114.00

Hotshot loses

- £200.00

+ £320.00

£120.00

-£6.00

£114.00

So, let's have a closer look at this profit figure of £114.00.

If Hotshot were to win, you would win £600 (200 x 3.00) from the Back bet, but lose £480.00 (320 x 1.50) from the Lay bet, as you have to pay out as a layer. This gives you a net market profit of £120, from which Betfair will deduct commission of 5%. That leaves you with £114 (120.00 - (0.05 x 120.00)).

If Hotshot were to lose, the calculation is even easier. You lose £200 from your Back bet, but win £320 from the Lay bet. Again, this gives a net market profit of £120 from which Betfair deducts the same 5% commission to give £114 as your trading profit.

Trading example screenshot
This is a screenshot of the above example. Note that the Lay Bet Liability is zero because Betfair realises that your winnings from your Back bet would cover the losses from the Lay bet, so do not require any additional deposit from you. So, as your Total Stake is £200, the Yield (return) on your trade is 57% ((114 / 200) x 100).

What is the Lay Bet Liability?
The Lay Bet Liability is the amount that you would lose if the selection that you are laying wins. It therefore corresponds to your stake (exposure) as a layer, and should not be confused with the backer's stake that you are laying. Betting exchanges require you to deposit enough funds to cover the liability of any lay bet that you make. It is obtained by the following formula:

Lay Bet Liability = Backer's Stake x (Price - 1)

For example, if you layed a horse for £100 at 6.00, your Lay Bet Liability would be £500. This is the amount that you would have to pay the backer if the horse wins. If the horse does not win, you would win the backer's stake £100 minus commission.

Arb Cruncher displays your Lay Bet Liability for all Back/Lay arbs and trades. The Total Stake displayed by Arb Cruncher is computed by adding the Back Bet Stake to the Lay Bet Liability.