We have now dealt with the case where we anticipate that a horse’s odds may well increase.
Now let’s deal with the case where we think that a horse’s odds will decrease.
It is 5pm. A horse called ‘Tradeit’ is running in the 5:30 race at Southdown.
The odds on Tradeit on one of the betting exchanges is currently 8.0.
At 4:30pm, the odds on Tradeit began to slowly decrease. It therefore looks probable that the odds on Tradeit will continue to decrease.
A £5 bet is therefore placed on Tradeit to win.
At 5:15, the odds on Tradeit have decreased to 4.0.
A second bet of £10 is therefore placed on Tradeit, this time to lose.
Now let’s look at the maths:
Bet 1 (5:00pm):
If Tradeit wins the race, the profit will be £5 x (8.0 – 1) = £5 x 7 = £35.
If Tradeit loses the race, the loss will be £5 (the stake).
Bet 2 (5:15pm):
If Tradeit wins the race, the loss will be £10 x (4.0 – 1) = £10 x 3 = £30.
If Tradeit loses the race, the profit will be £10 (the stake). Now let’s look at the net effect of the two bets:
Tradeit wins the race:
Profit on bet 1 = £35.
Loss on bet 2 = £30.
Net profit = £35 – £30 = £5.
Tradeit loses the race:
Loss on bet 1 = £5 (the stake).
Profit on bet 2 = £10 (the stake).
Net profit = £10 – £5 = £5.
From the above, it can be seen that, regardless of whether Tradeit wins or loses the race, a profit of £5 will be made.
What has actually been achieved by the placing the two bets?
A bet was ‘purchased’ on Tradeit at a particular price and then sold at a higher price, thus making a profit in the process.
What actually happened was that a bet was purchased on Tradeit to win for £5 (the back bet) and then a bet was sold on Tradeit to lose for £10 (the lay bet).
The result was a £5 profit.
The result of the race was immaterial.
This is what Arbitraging is all about.
It isn’t about betting on the outcome of a race.
It’s about profiting from a movement of the odds on a horse, rather than on a horse’s performance in a race.
That is why the outcome of a race is unimportant in arbitraging.
What is important in arbitraging is that the odds on a horse move in the predicted direction.
The more that the odds move in the predicted direction and the greater the size of the bet, the larger will be the profit.
Given the above, here’s a good question:
If arbitraging a bet always leads to a profit, regardless of the outcome of the race, why shouldn’t all bets be arbitraged?