Horse Racing Arbitrage Explained

Let us suppose that you have:

• Never placed a bet on a horse before
• Never used a betting exchange before
• A new system that requires further testing before it can be considered fully tested

In such cases, the cautious investor may wish to stake less than the minimum allowed by the betting exchanges in order to reduce the liability of bets at a time when a system is at its most vulnerable.

On some betting exchanges, the minimum stake is £2 per bet.

Note that the minimum is applied to the stake and not to the liability on the bet.

Also note that when laying a horse to lose, the liability is a multiple of the stake of the bet.

In order to place a bet on a betting exchange such that the stake is less than the minimum allowed, a form of arbitraging can be used.

By way of an example, let us suppose that we lay a horse to lose using a stake of £3 and then back it to win for £2.

What has this achieved?

Effectively, a horse has been layed to lose using a stake of £1 (£3 – £2).

This is £1 less than the minimum £2 stake allowed by the betting exchange.

As a result, the liability on the bet is less than it would otherwise be had the minimum stake been used.

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

Let us suppose that the odds on a horse on a betting exchange are 3.0.

Let us also suppose that the horse is layed to lose using a stake of £3 and then backed to win using a stake of £2.

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Now let’s look at the maths:

Bet 1

If the horse wins the race, the liability would be £3 x (3.0 – 1) = £3 x 2 = £6.If the horse loses the race, we will win £3.
Bet 2

If the horse wins the race, the profit would be £2 x (3 – 1) = £2 x 2 = £4.

If the horse loses the race, we will lose £2.

Now let’s look at the net effect of the two bets based upon the race outcome:

Horse wins the race:

Loss on bet 1 = £6.

Profit on bet 2 = £4.

Net profit = £4 – £6 = -£2.

Horse loses the race:

Profit on bet 1 = £3 (the stake)

Loss on bet 2 = £2 (the stake).

Net profit = £3 – £2 = £1.

What have we achieved in placing the two bets?

If the horse is layed to lose using the minimum £2 stake allowed by the betting exchange and it won, the liability would be £6.

By placing the second back to win bet, the liability, should the horse win, has been reduced to £2.

Throughout this article, we have referred to the arbitraging of one selection per race.