Horse Racing Arbitrage Explained

Firstly, let’s consider reducing the odds of a selection that is to be layed to lose.

To illustrate this point, let us look at the following example:

Let us suppose that the odds of a selection on one of the betting exchanges is 4.0 and a £5 bet is placed on the selection to lose.

The odds on the selection then increase to 5.0 and a second bet of £3 is placed on the selection to win.

Now let’s look at the maths:

Bet 1

If the selection wins, the loss will be £5 x (4.0 – 1) = £5 x 3 = £15.

If the selection loses, the profit will be £5 (the stake).

Bet 2

If the selection wins, the profit will be £3 x (5 – 1) = £3 x 4 = £12.

If the selection loses, the loss will be £3 (the stake).

Now let’s look at the net effect of the two bets:

Our selection wins:

Loss on bet 1 = £15.

Profit on bet 2 = £12.

Net profit = £12 – £15 = -£3 (a loss).

Our selection loses:

Profit on bet 1 = £5 (the stake).

Loss on bet 2 = £3 (the stake).

Net profit = £5 – £3 = £2.

If we divide the net loss by the net win on the two bets, we get 3/2 = 1.5. Adding 1.0 to the result gives us 2.5.

These are the betting exchange odds that the selection was actually layed at, as opposed to the betting exchange odds of 4.0 that the selection would have layed at had the second bet not been placed on the selection to win.

As we can see from the above, the bet has only been ‘partially’ arbitraged because there is an outstanding liability on the two bets of £3.

Given that the selection is expected to lose, however, this is perfectly acceptable.

In addition, the profit, should the selection lose as expected, is greater than the profit that would have been achieved had the selection been fully arbitraged.

What has been achieved by placing the two bets on the selection?

Well, the liability of the bet has been reduced from £15 to £3.

In order to reduce the liability, it must be recognised however that a penalty had to be paid in that a reduction in the potential profit (from £5 to £2) had to be accepted.

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Therefore, in order to reduce the liability of the bet, the potential profit had to be reduced – but to a lesser extent.

As a result, a selection has been layed to lose at odds that are less than those available on the betting exchange.

In fact, the selection has been layed at odds of 2.5 instead of 4.0.

This represents a reduction in odds of 100% x (4 – 2.5) / 4 = 100% x 1.5/4 = 25% x 1.5 = 37.5%.

We have therefore layed the selection to lose at odds which are 37.5% less than the odds available on the betting exchange.

This is likely to be less than the SP of the selection.

Of course, the odds of a selection will not always increase after it has been layed to lose.

But then, if it doesn’t, nothing will have been lost and, if it does, we will have gained.

We have now seen how to use partial arbitraging to reduce the odds at which a selection can be layed to lose.

Now, let’s consider increasing the odds of a selection that is to be backed to win on a betting exchange.

To illustrate this, let us look at the following example:

Let us suppose that the odds of a selection on one of the betting exchanges is 7.0 and a £5 bet is placed on the selection to win.

The odds on the selection then decrease to 3.0 and a second bet of £2 is placed on the selection to lose.

Now let’s look at the maths:

Bet 1

If the selection wins, the profit will be £5 x (7.0 – 1) = £5 x 6 = £30.

If the selection loses, the loss will be £5 (the stake).

Bet 2

If the selection wins, the loss will be £2 x (3.0 – 1) = £2 x 2 = £4

If the selection loses, the profit will be £2 (the stake).

Now let’s look at the net effect of the two bets:

Our selection wins:

Profit on bet 1 = £30.

Loss on bet 2 = £4.Net profit = £30 – £4 = £26.

Our selection loses:

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Loss on bet 1 = £5 (the stake).

Profit on bet 2 = £2 (the stake).

Net profit = £2 – £5 = -£3.

If we divide the net win by the net loss on the two bets, we get 26/3 = 8.67.

Adding 1.0 to the result gives us 9.67.

These are the betting exchange odds that the selection was actually backed at, as opposed to the betting exchange odds of 7.0 that the selection would have backed at had the second bet not been placed on the selection to lose.

As we can see from the above, the bet has only been ‘partially’ arbitraged because there is an outstanding liability on the two bets of £3.

Given that the selection is expected to win, however, this is perfectly acceptable.

In addition, the profit, should the selection win as expected, is greater than the profit that would have been achieved had the selection been fully arbitraged.

What have we achieved by placing the two bets on the selection?

Well, we have reduced the liability on our bet from £5 to £3.

In order to reduce our liability, it must be recognised that we have had to pay a penalty in that we have been forced to accept a reduction in our potential profit from £30 to £26.

Therefore, in order to reduce the liability of the bet, the potential profit had to be reduced – but to a lesser extent.

As a result, a selection has been backed to win at odds that are greater than those available on the betting exchange.

In fact, the selection has been backed to win at odds of 9.67 instead of 7.0.

This represents an increase in odds of 100% x (9.67 – 7.0) / 7 = 100% x 2.67/7 = 267%/7 = 38.14%.

We have therefore layed the selection to lose at odds which are 38.14% greater than the odds available on the betting exchange.

This is likely to be much greater than the SP of the selection.

Of course, the odds of a selection will not always increase after it has been backed to win.

But then, if it doesn’t, we will have lost nothing and, if it does, we will have gained.

We have now seen how to use partial arbitraging to increase the odds at which a selection can be backed to win.

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Arbitraging is such a relatively involved and a relatively complex area because it involves the placing of two or more coordinated bets.

As such, we have included a tips and hints section in this article.

Tips and Hints

• Before arbitraging activities begin, it is essential that the theory, methodology and implications are fully understood.

• Before arbitraging activities begin, it is essential that it is tested out on paper first.

• Prior to placing the initial bet, a plan should be created. The plan needs to cater for all circumstances such that, if and when they occur, a solution is at hand. This will avoid the necessity of having to make an on the spot decision under pressure, especially during in-running arbitraging i.e whilst the race is in progress. As arbitraging proficiency increases, the issues that arise and their possible solutions will become apparent.

• When first starting to arbitrage, it is advisable that minimum stakes are used. In this way, any misconceptions or errors will result in minimum losses.

• Learning to become a good arbitrager requires practice and patience. It is not a skill that can be developed overnight.

• Accept that mistakes are part of the learning process and that they will happen from time to time.

• If a decrease in a selection’s odds is anticipated, the win bet should be placed first and the lay bet placed when the odds decrease.

• If an increase in a selection’s odds is anticipated, the lay bet should be placed first and the back bet placed when the odds increase.

We have now learned what arbitraging is, what it can be used for and how to arbitrage a bet.

We have also learned how we can create a free bet and how to arbitrage multiple horses in the same race and even how to arbitrage the same horse multiple times.

We have also learned how we can reduce the odds of a selection that we would like to lay to lose and how to increase the odds of a selection that we would like to back to win.