ARB205: Eliminating or mitigating the 5 risks of sports arbitrage
As mentioned in the introduction, nothing in life is risk free and sports arbitrage is no different. There are ,many risks of sports arbitrage, but they are relatively small and can be mitigated easily. What we can say is that the reward from sports arbitrage trading is far greater than the risk involved.
In addition, you don’t need to risk any money upfront. In the preliminary ‘paper-trading’ stage there is absolutely no cost and no bankroll required. You can read our lessons for free, familiarise yourself with arb-finding alert services for free, register at bookmakers for free and paper-trade any arbs you discover. Sports arbitrage can be evaluated thoroughly at absolutely no cost and no risk to you.
You have nothing to lose by paper-trading sports arbitrage.
When you are ready to start ‘real money’ arbing, before you begin you need to be aware of the risks involved and ensure you have appropriate systems/processes in place, and the necessary knowledge that our lessons provide, to eliminate or mitigate these risks. The 5 risks and their mitigation strategies are discussed below.
Risk 1. Odds move between placing the first bet and the second bet
This is by far the biggest risk in sports arbitrage, and is ever present irrelevant of how much experience you have in sports arbitrage. The basic premise of sports arbitrage is making two simultaneous bets at two bookmaker websites, and no matter how sophisticated your computer setup is (multiple monitors etc.) there will always be a time delay between placing the first bet and then placing the second bet.
In this time (usually 5 seconds or less) it is possible for a bookmaker to move their odds and leave you in a position where the arb is no longer profitable.
This risk is ever present, but rarely does it manifest itself. The chances of a bookmaker moving odds in the 5 seconds it takes to place two bets is slim. And the good news for arbers is that even if a bookmaker does drop odds during this time then at worst it can cause a very small loss (for example a 1% loss), or maybe even still a profit – it is not going to wipe out your entire bet amount, as would occur if you were a square better.
Mitigating risk 1. Be ready to pull the trigger on all bets before placing the first
Sports Arbitrage Australia recommends taking the following three measures to minimise this risk:
- Don’t dawdle
- Line up both bets before placing the first bet – this entails opening up both bookmaker websites, navigating to the specific betting pages on both websites, putting the bet amounts (as advised by the alert service) in both websites, and taking both bets to the “confirm” screen. Do not confirm either bet until this is ready for both. Then, when you have triple-checked that the bets are correct and are ready to pull the trigger, confirm the first bet, and as quick as you can confirm the other(s). If done well the time between the two confirmations will be less than 5 seconds.
- Multiple monitors – while recommended, this is not essential. Multiple monitors assist with expediency and many professional arbers have a multiple monitor setup on their computers. Two monitors is good, three is better. There is no reason why casual arbers can’t have the same setup – it’s a small price to pay for the additional ease which it brings to arbing.
Risk 2. Human error – stuffing up when placing bets
We’re all human and we all make mistakes. Unfortunately, small mistakes can have large consequences in sports arbitrage.
Small mistakes can include:
- transpositional errors
- betting on the same team twice
- betting on over twice (instead of over and under)
- betting one side on ‘half-time’ and the other side on ‘full-time’
- misreading Asian handicaps
- not checking tennis rules
- not matching baseball pitchers
- not checking basketball rules
- not checking ice hockey rules
- not betting on all possible outcomes
- betting on a game too far in the future
Mitigating risk 2. Paper trade until you are ready; triple-check everything
Mistakes tend to be exacerbated due to the pressure you feel when rushing to place bets, but it is better to miss an arb opportunity than it is to rush it and make a mistake. Mistakes are hard to fix, and often even the fix results in a small loss being made. Worst case is that you don’t realise that you have made a mistake until after the bets are settled against you.
This risk can be mitigated by:
- Paper-trading until you are comfortable with the entire process.
- Triple-check everything before confirming the bets – take care and get bets right the first time. If it doesn’t look or feel right, walk away. Triple-checking speed will come with experience, but it’s important to triple-check everything whether you are a beginner or an experienced arber. Triple-checking isn’t just before betting either, once you’ve confirmed the bets you should check one more time.
- Know how to fix mistakes – it is likely in your arbitrage experience that you will make a mistake, we all do. Mistakes can be fixed if you stay calm and think through the issue (for example, if you have bet twice on “over 2.5 goals” by accident then the solution is to bet twice on “under 2.5 goals”). The solution may result in a small loss but it’s far better to take this small loss than to have an open bet – that is called gambling.
Risk 3. Mismatched bookmaker payout rules
Not all bookmakers have the same bet payout rules, and arbing between two bookmakers with opposing rules can be risky. For example, all sports bookmakers have different rules for tennis payouts – specifically at what stage of a tennis match a wager is declared ‘complete’ should a player retirement occur. Similar rule mismatches exist in baseball, ice hockey, and basketball.
The risk is that one bookmaker can void the bet (returning your money), and the other will consider the bet as ‘completed’ (paying your winnings on a winning bet; or keeping your wager on a losing bet). This is effectively keeping an open position… or gambling.
Eliminating risk 3. Don’t bet across bookmakers with mismatched rules
Thankfully, this is a risk that can be completely eliminated by simply knowing the bookmaker payout rules and not betting across mismatched bookmakers.
Our later lessons cover each of the sports bookmaker rule mismatches in greater detail, and provide rule summary tables that you can use to ensure arbs are risk-free. Print these tables off, stick them to your wall for quick reference, and check them before placing any bets.
Risk 4. Palpable errors
All Australian bookmakers have clauses in their betting terms and conditions basically stating that if they make an ‘obvious error’ in their odds (called a palpable error, or palp), they can cancel the bet and return the punters money.
While Sports Arbitrage Australia has never had a bet voided from a palpable error, there are numerous stories on internet forums regarding offshore sports bookmakers doing this. Presumably palpable errors are more frequent in sports arbitrage than in other forms of sports betting because arbers target odds which are higher than the norm.
The risk is that if one of the bets placed is declared a palpable error and therefore voided, the arb now has an open position that needs to be closed.
Mitigating risk 4. Identify and avoid possible palpable errors
The good news for Australian arbers that bet with Australian bookmakers is that you must be notified (by phone or email) before the sporting event begins that your bet has been voided due to a palpable error. Australian bookmakers are not allowed to declare palpable error after the beginning of a match – this is per the Australian gaming licence requirements. If you are notified of a voided bet due to a palpable error before a match, you will have time to close the open position, as appropriate, to avoid or minimise any loss.
Unfortunately, offshore bookmakers are not subject to the same stringent licencing conditions and have been known to void bets by declaring a palpable error after the event has finished.
There is no way to ensure that a bookmaker won’t declare a palpable error on one of your bets. However, by following the below three strategies then you may, like us, avoid palpable errors for the duration of your arbitrage experience:
- Avoid arbs over 5% – not all 5%+ arbs are palpable errors, but an arb this good should be ringing alarms bells. Bookmakers don’t vary opinions that much, so an arb this profitable is likely to be a palpable error. Don’t be greedy.
- Take extra care on arbs over 3% – be careful before jumping in feet first. 3%+ arbs do exist, but it’s on the high end of the arbitrage scale. Check that the odds are not wildly different to other bookmakers; check that odds have not been mistakenly swapped on handicaps or over/under; check that all bookmakers agree on the favourite.
- Know how to close positions if necessary – if a palpable error is declared on one of your bets (with an Australian bookmaker) then they are required to notify you before the event begins. This gives you time to close the open position by re-wagering the bet that was voided, only with a different bookmaker this time. As advised before, if you stay calm and think through the issue then at worst you will walk away with a small loss which is far better than having an open bet and risking the whole amount to chance.
Risk 5. Not knowing what you are doing
There is a steep learning curve in sports arbitrage, and it’s easy to get excited early on and jump into the deep end without bringing your knowledge up to par. Not doing your homework is a bad idea because knowledge is the single most important factor in avoiding big losses in sports arbitrage.
You need to understand betting, odds, bet types, how bookmakers operate, how betting exchanges operate, what sports arbitrage is about, and how to react in unexpected situations.
Mitigating risk 5. Knowledge is power
Read, read, read, paper-trade, read, read, ‘real-money’ trade, then read some more – you must never stop learning. Sports arbitrage is constantly evolving and although our lessons address a wide range of Australian-specific sports arbitrage topics, we do not have detailed lessons on offshore arbing or some highly specialised arbing topics (such as creating your own alert software) because there is just too much to cover.
As always, Sports Arbitrage Australia suggest that you read, appreciate and fully understand the basic concepts and more advanced strategies of sports arbitrage, as can be found on our website. You should continually research and learn new techniques and strategies, either by self-discovery or from reputable forums and arbers.