There are some myths about sports arbitrage which you should be clear about before deciding whether or not to spend your time & effort starting your own sports arbitrage trading project.
Myth No. 1: Anyone can be a successful sports arbitrage trader
It takes certain skills & resources to be a successful sports arbitrage trader and not everyone is suited to it. Websites and companies which try to make it seem that anyone can be a successful sports arbitrage trader are, at best, hiding the truth.
External Resources
Any sports arbitrage trader or wannabe sports arbitrage trader will need to have access to the following:
- A high-speed internet connection
- A fairly recent spec. computer
- Appropriate amounts of trading capital
- Professional trading software
- Enough time to trade
Personal Resources/Skills
- The patience to train yourself over 4-6 weeks without making much profit
The best way for any new trader to pick up essential skills is to place 100 arbitrage trades with very smallstakes. This allows you to gain a great deal of experience without the potential for any emotional and financial damage from any mistakes you make.
- The ability & willingness to learn from your mistakes
Every single sports arbitrage trader makes mistakes from time to time but they occur most often at the start, when the novice trader is inexperienced, excited & nervous. The key difference between those who fail and those who succeed is that the latter are able to learn from their mistakes and make changes to the way they do things so that they don’t repeat the same mistakes.
- The ability to work with numbers
Sports arbitrage trading involves working with numbers; there is no escaping this. Of course, there is software to help out with virtually every calculation you need to make but if you cannot do simple addition and subtraction quickly and accurately in your head then sports arbitrage trading may not be for you.
- The ability to surf websites (!)
This may sound basic but the fact is that as an active sports arbitrage trader you will find yourself completing financial transactions on as many as 100 different websites regularly. You’ll need to be able to do this quickly and accurately each time.
Myth No. 2: Sports arbitrage trading is 100% risk-free
Whilst the arbitrage trades you construct will be risk-free, the practicalities involved in actually placing the bets does introduce some risk. The good news is that you can work to eliminate almost all of this risk by taking certain precautions and paying attention to specific issues.
You can compare this to crossing the road – as long as you take the necessary precautions you should be safe; those who cross without looking are much more likely to get hit by a car.
Risks that appear in sports arbitrage:
- Bookmaker Rules Differences
In certain types of event, bookmaker operate different settlement rules for bets. Placing bets without taking these differences into account can lead to windfall gains or losses. The sports in which this is an issue for sports arbitrage traders are:
Baseball (the rule related to how bookmakers treat pitcher changes)
Ice Hockey (the rule related to whether or not the bookmaker includes overtime)
Tennis (the rule related to retirement of a player before the match is complete)
- Solutions
There are various ways to resolve this issue & avoid the risk which it creates.
The most obvious but least attractive is simply to avoid trading these sports. Another solution is to maintain a database of bookmaker rules (perhaps in a spreadsheet) & to refer to this when trading. Over time you will probably start remembering the rules for many of the bookmakers you use frequently.
A third solution is to use the facilities of the Sports Arbitrage World TraderZone. In here, a database of bookmaker rules is maintained and used to categorise sports arbitrage trades automatically. You simply choose whether or not you wish to receive trades with mixed rules and the software does the rest.
- Bookmaker Errors
Every so often, bookmakers make mistakes. Usually this will be the result of a simple typing mistake. For example, an input clerk may post a price of 20.00 instead of 2.00
These errors can cause problems for sports arbitrage traders because profitable trades are created by prices which differ greatly from the market average. Worse still, every bookmaker operates something called the ‘Palpable Error Rule’ in his terms & conditions. This rule simply means that if the bookmaker makes a pricing error which is obviously a pricing error, then he has the right to cancel the bet. In this case, you would receive a refund of the money you have bet; however, the other bet(s) you placed in the sports arbitrage trade would now be uncovered at at risk.
- Solutions
As you gain experience, it will start to become increasingly obvious to you when the bookmaker has made a mistake. As this happens, you’ll be able to differentiate between a great price and an obvious error and you’ll simply avoid placing bets on the latter. However, this can lead to a lot of wasted time, especially if you use a run-of-the-mill sports arbitrage service or software which will invariably generate large numbers of ‘sports arbitrage trades’ based on the inclusion of error prices.
The Sports Arbitrage World TraderZone provides a far better solution to help you avoid such errors. Within its Preferences, it contains a setting which allows you to decide when a bet should be considered an error.
This is calculated by looking how far away the price is from the market-average price for that particular bet. For example, a price which is 50% higher than the market average is almost certainly en error. So the TraderZone marks this price as a possible error and lists all trades which involve this price in a separate window within your trading environment.
So you can investigate these trades at your convenience without being distracted from the large numbers of legitimate trades you’ll see in the rest of the system.
The ability of the TraderZone to allow interactions between traders also means that you can flag a trade as a possible error and this information will be passed on to all of the traders in your group. This way you have the benefit of computerised error-checking as well as the experience of all of the traders in your group.
- Trader Errors
Humans make mistakes and so will you in your career as a sports arbitrage trader. The most common errors are currency conversion errors, placing the wrong bet and/or missing your bet altogether.
- Solutions
All of these errors can be avoided most of the time, of course, but when they happen it is worth looking at your processes and seeing if something can be improved in order to avoid the same mistake in future.
In general, the most common reasons for making these types of mistakes is a lack of proper organisation or poorly thought-out trading processes These can certainly be improved by careful analysis and changes to the way you do things. The most important element here is that you take responsibility for the mistake and then take measures to avoid its repetition.
Again, are tools in the Sports Arbitrage World TraderZone which provide enormous assistance in avoidance of such errors.
- The Calculator automatically takes into account the account currency of the bookmakers involved in the bets you are placing. It updates currency rates automatically from the web and uses these rates in its calculations. Thus you can always be assured that you’re betting the correct amounts.
- If you miss a bet because the price moves or the bookmaker removes it before you’re able to capture it, the TraderZone’s next-best-price window automatically displays a list of options for you to cover your exposure. In many cases, this won’t even result in a loss but just a smaller profit than you had anticipated
Myth No. 3: Sports arbitrage trading will make you millions
This myth goes hand-in-hand with the myth of perpetual compounding of profits and it is often used by hard-sell companies interested only in parting you from your cash. The basic idea is this: with sports arbitrage, you can easily make 3% profit on a single trade. Therefore, if you continue to reinvest that profit, along with your original capital, into future trades, the ‘miracle of compounding’ will take over and make you rich.
Unfortunately, it does not work this way. Although you can certainly reinvest your profits in future trades, you cannot invest ALL of your capital in every trade you make. Further, you cannot invest ALL of your capital every day.
Bookmakers set limits on how much they will accept on individual bets from individual customers. These limits are usually in the range £200 – £1000 and may rarely be higher. The point is, that once your trading capital exceeds this you obviously cannot bet your entire capital on a single sports arbitrage trade. You can make very good use of excess capital by investing in greater numbers of trades simultaneously and this is what professionals do; sometimes executing as many as 50 trades each day.
Once you have bet your money in one or several trades, those funds are blocked until the result of the event is known and the bookmakers pay out on your winning bets. This usually takes between 1 – 48 hours depending on the events you bet on and the timing of when you place them. So, you may find that after having bet all of your capital on a series of sports arbitrage trades, you are unable to trade further until some bets settle.
After the bets settle, however, you may find that you now have lots of money in some accounts and little or no money in others. This is simply the result of money being transferred as a result of winning and losing bets. In order to rebalance your accounts you may need to withdraw from the full accounts and then deposit into those which are empty. This process can take up to 3 days in some cases. although if you use online wallets such as Neteller & Moneybookers, it should take just minutes or hours.
Hopefully, you can now see clearly that the idea of compounding all of your trading capital everyday is unrealistic. If you are an active sports arbitrage trader, it’s far more realistic to work on the basis of being able to turnover your entire trading capital, on average, once every week. Also consider that your average sports arbitrage profit will be approximately 2% – 3% and you arrive at a realistic projection of profits: 8% – 12% per month [Amount of capital x 4 turnovers per month] x (2% or 3%).
So, don’t get fooled into thinking that you can make millions with sports arbitrage. Aim for and expect a return of 8% – 12% per month and understand that stake limits mean that the most capital you will be able to deploy effectively, under optimal conditions, is about £250,000.