Horse Racing Arbitrage Explained

A point worthy of note is that the odds required to effect the required arbitrage profit may exist on a betting exchange for a few seconds only and may disappear just as quickly as they appeared.

To avoid the disappointment of missing the required odds, it is advised that the second bet is created as soon after the first bet has been submitted for matching to the betting exchange.

The second bet should contain the stake and the odds required.

The bet should be submitted to the betting exchange for matching as soon as the first bet has been matched – and not until.

It will remain on the exchange, in an unmatched state, until such time as the required odds become available.

If they do, the bet will be matched and the required arbitrage profit will have been secured.

Be aware, however, that if a horse, running in the same race, is withdrawn at any time following the placing of the second (unmatched) bet, or the second bet has not been matched by the start of the race, the bet will be cancelled by the betting exchange.

If this happens, simply regenerate the bet and place it on the system to await matching.

As has now become apparent, arbitraging involves the placing of a win and a lay bet on the same horse.

Traditional bookmakers do not allow members of the public to place lay bets on horses.

As a result, the lay bet must be placed on one of the betting exchanges.

The win bet, however, can be placed either on one of the betting exchanges or with a traditional bookmaker.

The bet can even be placed with a traditional bookmaker using the internet or by phone.

READ
The Importance of a Good Selection System

Therefore, it is possible to sign onto a betting exchange using one internet session and to sign onto a traditional bookmaker using a second internet session and monitor the odds in both systems with a view to taking advantage of the odds differential between the two systems in order to arbitrage a bet.

We have now seen that in order to arbitrage a selection, we must first identify a selection whose odds, we feel, will either increase or decrease.

Having identified a selection, we must place the initial bet.

If we feel that the selection’s odds will increase, we must place the lay bet first.

When the odds have increased, we must then place a second bet on the selection. In this case, the second bet must be for the selection to win.

If we feel that the selection’s odds will decrease, we must place the back to win bet first.

When the odds have decreased, we must then place a second bet on the selection.

In this case, the second bet must be for the selection to lose. It should also be noted that the first bet if placed on a betting exchange, must be matched before the second bet is placed. Otherwise, the second bet may get matched and the first bet may not. In this case, we may not be presented with a chance to arbitrage the bet.

In order to benefit financially from arbitraging, the potential profit on the first bet must be greater than the potential loss on the second bet and the potential profit on the second bet must be greater than the potential loss on the first bet.

READ
How to Deal With the Dreaded Losing Runs

The odds movement on a selection and the stakes placed on the selection must be such that the above is true. Otherwise, any attempt to arbitrage a selection will result in a potential loss.

Here are two examples which illustrate this point:

Example 1:

Let us suppose that the odds on a selection on one of the betting exchanges is 5.0 and a £5 bet is placed on it to win. The odds then fall to 2.5 and a second (lay) bet of £10 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 (5.0 – 1) = £5 x 4 = £25.

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

Bet 2

If the selection wins, the loss will be £10 x (2.5 – 1) = £10 x 1.5 = £15

If the selection loses, the profit will be £10 (the stake).

The potential profit on bet 1 (£25) is greater than the potential loss on bet 2 (£15) and the potential profit on bet 2 (£10) is greater than the potential loss on bet 1 (£5).

As such, we have effected an arbitrage where we are in a winning position irrespective of the outcome of the race.

Example 2:

Let us suppose that the odds on a selection on one of the betting exchanges is 5.0 and a £5 bet is placed on it to win.

The odds then increase to 6.0 and a second (lay)bet of £10 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 (5.0 – 1) = £5 x 4 = £25.

READ
Bookmakers Explained - The Principles of Bookmaking

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

Bet 2

If the selection wins, the loss will be £10 x (6.0 – 1) = £10 x 5.0 = £50

If the selection loses, the profit will be £10 (the stake).

Although the potential profit on bet 2 (£10) is greater than the potential loss on bet 1, the potential profit on bet 1 (£25) is less than the potential loss on bet 2 (£50) and (£5).

As such, we will win (£10 – £5 = £5) if the horse loses but will lose (£50 – £25 = £25) if the horse wins.

Therefore, we have failed to arbitrage the selection because we will not win irrespective of the outcome of the race.

Betting exchanges charge a commission on all winning bets. Therefore, when using a betting exchange, it should be remembered that the commission needs to be taken into account when considering arbitraging.

Now that the principles of arbitraging have been explained and examples have been provided, let’s move on.