I received an email this morning from a confused reader asking about arbitrage, in connection with a newsletter produced by the normally excellent MoreMoneyReview website.
Now I’m a big fan of MoreMoneyReview and have said so several times in the past.
Indeed, if you don’t read it, I really think you should.
However this does not mean they get it right every time.
And I don’t believe they did so today.
Their morning email repeated a common misunderstanding often made in betting circles: the confusion between sports arbitrage and trading.
The newsletter begins well enough.
Author Michelle Roberts explains, in admirably plain English, that arbitrage is “the act of placing a bet on all outcomes of an event so that you make a profit no matter what happens”.
Unfortunately, from here things start to go downhill.
For, after correctly pointing out that sports arbitrage is about exploiting price discrepancies between bookmakers and/or exchanges, Michelle then describes an example that is pure trading.
Imagine, she says, a horse race with a runner called Smokin’ Hot Chocolate (great name!) going off at even money.
If you were to place £100 on your horse then come back an hour later and be fortunate enough to find you could lay the same selection at the shorter price of 1.8, this, according to Michelle, would be “an example of arbitrage betting”.
No it wouldn’t.
It would be an example of successful (or lucky) sports trading.
There may be a slight quibble here around the dictionary use of the term arbitrage in broader financial contexts, but in normal betting usage, sports arbitrage involves spotting two (or more) betting opportunities that simultaneously net off to produce an overall profit, no matter what the outcome.
It’s the immediacy of the opportunity that makes the difference: for sports arbitrage is generally deemed to be (all but) risk-free.
As soon as you introduce a one hour delay into the process, you are trading not arbing.
You’re hoping things go your way, not placing risk-free bets.
Be under no illusions. No matter what More Money Review may suggest, trading is far higher risk than arbitrage because of course, in their example, the price of Smokin’ Hot Chocolate could have gone the other way and, say, ended up at 2.2.
In which case all you’ve managed to do is lock in a loss.
Arbitrage has had a bad press – so it doesn’t help when it’s misrepresented.
You’ll find quite a few punters are quite sniffy about it. I don’t know why.
They say it’s boring: well, it doesn’t have to be.
Or they say it doesn’t return much profit. (Have you read Ian’s Betburger review?).
Whereas the truth is that it’s a perfectly valid betting strategy that makes some punters quite a bit of money!
Perhaps most importantly, sports arbitrage works.
So it deserves its rightful place in the armoury of every punter.
In my opinion, it can be particularly useful as a recovery strategy.
Just please don’t get it muddled up with trading!