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Arbitrage Gambling

by Jerry "Jet" Whittaker
March 24, 2006

Arbitrage is a situation when the bookmakers' prices differ enough that they allow bettors to back all outcomes and still make a profit. It is often referred to as an "arb".

Arbitrage is to make a combination of bets so that if one bet loses another wins. There is an implication of having an edge, at no risk at all or low risk. The second bet hedges the first. Arbitrage can also be used as a noun.

The Economics Glossary defines arbitrage opportunity as "the opportunity in order to buy an asset at a low price and then immediately selling it on a different market for a higher price. For example if one can buy an asset for $5, turn around and sell it for $20 and make $15 for my trouble then that is arbitrage. The $15 gain represents an arbitrage profit. Arbitrage in Theory is very different as compared with arbitrage as in practice. It may sounds like a great plan though in the case of sports gambling it is unworkable in practice, due to the transaction costs. The transaction costs undermine many arbitrage schemes such as this one as they turn break-even propositions into losing ones. In the sports gambling, the sports books require that if you bet $1110 in order to win $1000. This $110 difference, which is how, the sports book make money which acts a transaction cost. With the transaction costs, instead of breaking even the bettor loses $110. The sport gambling is a case in just one market where there is the potential for close to arbitrage profits to be had.

An arbitrage generally takes on more complex forms, involving several currencies. Take for example that supposes that the Algerian Dinars – to – the Bulgarian Leva exchange rate is 2 and the Bulgarian Leva-to-Chilean peso is 3. In order to figure out what the Algerian-to-Chilean exchange rate needs to be, we can just multiply the two exchange rates together.

Arbitrage may be like betting's equivalent of the Holy Grail. As we all no that no form of gambling is entirely risk-free, so not even arbitrage. The fact is that it is frequently and wrongly acclaimed as being so is perhaps partly due to the use of the term "sure win". There are numerous difficulties associated with the arbitrage betting that can and do eat into the profits, sometimes with potentially disastrous consequence also.

 




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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