Betting Exchange Arbitrage - A Punter's Eye View
By Adam Todd - Inside Edge
(NB. This is the title of the original article as it appeared in Inside Edge. However, the term arbitrage is actually incorrect, as arbitrage means buying on one market and selling on another market. The term trading would be more accurate.)
Betfair arbster Adam Todd's exclusive guide to successful online arbitrage
Betfair has transformed the horse racing betting market into something more resembling the financial markets. Laying and backing the same horse at different prices in a liquid and volatile market is similar to buying and selling shares or futures. The big differences are that it is accessible to anyone with a computer, the stakes can be smaller, you don't need to pay a broker to put the orders in for you, and you don't pay commission on every trade that you do.
'I've been trading the horses for a living on Betfair for nearly 18 months now, doing every race every day, and I don't know one end of a horse from the other. In that time I haven't picked up a racing paper or even seen a horse race, but I'm comfortably averaging over £1,000 a week and haven't had a losing day for seven months.
'Having no interest in or knowledge of horse racing helped me to concentrate on watching the market, as if the price related to a particular share or commodity that I was able to buy and sell at will.
After all, it's a lot easier to predict how a crowd of people are going tobehave in an exchange environment than it is to predict what positions a bunch of highly strung, lunatic horses are going to be in, three miles down the track.
'The exact same rules of supply and demand push the price about on Betfair as they do on any other exchange_traded product. If everyone is backing a horse with more money than the layers are laying, then the price will go down. If everyone is laying, then the price will go up. If you can read the market, you can profit from these moves.
'For instance, if you see large amounts of money coming in trying to back the favourite, you may well decide that the price is going to drop. You get £1,000 on at 2.82, the price continues to fall, and almost immediately you lay it back at 2.78. This gives you £40 profit if the horse goes on to win the race, and nothing if it loses.
We're not interested in whether the horse wins or loses, remember, so you divide the £40 by the odds you can lay at and lay that amount, in this case £14.38 at 2.78. If the horse wins, you will make your £40 but have to pay out £25.60 on your extra lay bet, leaving you with £14.40. If it loses, you just keep the extra £14.38 that you just took. You've won the race before it has even started; exchange trading has made the result irrelevant.'v
Adam's daily betting history, as well as daily updated recordings of every race he has traded on Betfair, can be seen at www.racingtraders.com