Arbs2U Is it right for me? 17 October 2014

Transcription

1 17 October 2014

2 Contents Section 1 Preface... 3 Document Feedback... 3 Section 2 Introducing Arbitrage... 4 A brief discussion on Betting... 4 What is Arbitrage?... 5 What are the risks involved?... 7 What is Arbs2U?... 7 How much does Arbs2U cost?... 9 Capital requirements... 9 How much will I make? This sounds too good to be true what s the catch? What do I need? How do I get started? October Page 2

3 Section 1 Preface This document introduces the concept of arbitrage and describes how the Arbs2U service can be used to benefit from it. It is intended to give you all the information you need to decide whether or not Arbs2U is something that you want to use. You ve probably received this document because you ve expressed interest in running the Arbs2U software. If you read through this document and decide it s something you d like to try, you can find details at the end on how to get started. Document Feedback Please help improve this guide by sending feedback to: docfeedback@arbs2u.com 17 October Page 3

4 Section 2 Introducing Arbitrage This section introduces the concept of arbitrage and discusses the risks involved with it before introducing the Arbs2U service itself. There are two things in this section that might scare you off the idea right away: 1. The section starts with a discussion on betting. When you hear the term betting it s likely that you instantly think we re talking about gambling and that what you re reading is some kind of get rich quick scam. I guarantee that it isn t a scam and I urge you to read and digest the information in this section so that you can make an informed decision. 2. There is some maths describing how stakes are calculated etc. I ve tried to make it straight forward to follow, but it may be daunting to you. The maths is there purely to try to explain fully how arbitrage works and I want to stress the fact that all of this is done automatically by the Arbs2U software. You will never have to calculate anything to operate the Arbs2U software so if you cannot follow it, please don t worry. By the end of the section you will know exactly what arbitrage is, understand the risks that are involved and be in a position to decide whether or not the Arbs2U service is for you. A brief discussion on Betting Before introducing the concept of arbitrage, you need to first have at least a basic understanding of betting. Traditional bookmakers have been around a long time and have profited greatly by offering poorvalue bets. Basically, a bookmaker offers a particular price on an outcome and people then place bets at those prices. A bookmaker offers a price in terms of odds. Traditionally, in the UK at least, these are given as fractional odds and would look something like 5/1. This is read as five to one and means that if the outcome happens, you will win 5 for every 1 you staked. You also receive your original stake back. For example, if we stake 10 at 5/1 and the bet wins, we receive 60 in total ( 50 profit and our 10 stake returned). This is worked out as follows: (5 x 10) If the bet loses, we lose our stake of 10. An alternative representation of the price is to use decimal odds. This format is widely used in Europe and is quickly becoming the standard format on the Internet. It is relatively straight forward to convert between fractional and decimals odds, we just divide the first number (5 in our example) by the second number (1 in our example) and add 1. So, fractional odds of 5/1 are represented as 6.0 in decimal odds (5 divide by 1 + 1). Adding 1 in this way makes it a little easier to calculate the total return from winning bets because it saves having to add the stake. For example, if we stake 10 at 6.0 and the bet wins, we receive 60 (as we did in previous example where odds were given as 5/1) which is simply 6 x October Page 4

5 Most of the traditional bookmakers now have an web site on the Internet. The Internet has also given rise to a new breed of bookmaker the Betting Exchange the most popular one being Betfair. When betting on an exchange, you re not actually betting against the exchange themselves but against another user of the website. The exchange acts as a middle-man, matching your bet with another user s bet and taking a percentage of the winnings as commission. A betting exchange enables regular people to act as a bookmaker by allowing them to offer odds that a particular outcome will not happen. Think about that for a moment. With a traditional bookmaker, you are always betting that a particular outcome will happen. For example, you might bet that A.N.Horse will win the 14:30 at Ascot. Betting a horse to win in this way is a back bet. On an exchange, in addition to placing back bets, you can also make the opposite bet, i.e. that A.N.Horse will lose. Betting a horse to lose in this way is a lay bet. It should be noted that when placing a lay bet, unlike a back bet, you can lose more than your stake if the bet loses (i.e. the outcome does happen). The amount you can lose is referred to as your liability or exposure. For example, if we place a lay bet by staking 10 at 6.0 we would have an exposure of 50 which is calculated as 10 * (6.0 1). When you think about it, this makes sense because the user who s back bet matched your lay bet placed a back bet for 10 at 6.0 and if she wins, she will receive 50 from you and get her stake back too. If the lay bet wins (i.e. the outcome doesn t happen) you profit by whatever you staked, in our example 10. Again this makes sense, because the user who placed the back bet placed the same 10 stake, but this time lost and her stake has effectively transferred to you. When you place a lay bet, you are effectively the bookmaker. As a bookmaker, you get to keep the other user s stake if the horse they bet loses. Now you understand the concepts of back and lay bets, and know how to work out the return from those bets, we can move on to the subject of Arbitrage. What is Arbitrage? Put simply, arbitrage is when a number of different bets are placed to cover all possible outcomes of an event so that a profit is made regardless of the result. Upon first reading, the above may sound like an impossible situation. However, it happens much more often than you might think and it is possible to take advantage of it to make consistent profits with relatively low risk. Let s look at how such a situation might arise. Today, the Internet hosts literally hundreds of bookmakers and they are all competing with each other for your custom. The primary way that they win custom is by offering better odds than their 17 October Page 5

6 competitors. The result of this is that the odds offered by online bookmakers are updated very frequently. As you ve already learned, the Internet has also given rise to the Betting Exchange which allows us to bet that an outcome will not happen. Most of the time, the odds offered for a particular outcome are higher on the exchange than on the bookmakers. But, because the odds are changing second-by-second, it often happens that in amongst all the odds movement activity, the odds offered by a bookmaker are higher than those on the exchange. At that point in time, it is possible to place two bets simultaneously to guarantee a profit, regardless of the outcome. For example, let s imagine that Ladbrokes offer odds of 5.0 on A.N.Horse and at the same time that horse is trading at 4.0 on Betfair. We place a back bet with Ladbrokes for 10 and place a lay bet on Betfair for 10. If A.N.Horse wins, we have: A winning bet with Ladbrokes giving a total return of 50 ( 10*5.0) which is a profit of 40 A losing bet with Betfair resulting in us losing our exposure of 30 ( 10*(4.0-1)) An overall profit of 10 ( 40-30) If A.N.Horse loses, we have: A losing bet with Ladbrokes, resulting in us losing our stake of 10 A winning bet with Betfair, resulting in us profiting by our stake of 10 An overall profit of 0 (i.e. break-even) So, by placing two bets of equal stakes we gave ourselves the chance of winning 10 and couldn t possibly lose regardless of the outcome. This is good, but we can do better. Rather than using equal stakes, we stake more money on Betfair. This time, we place our lay bet at 4.0 for If A.N.Horse wins, we have: A winning bet with Ladbrokes giving a total return of 50 ( 10*5.0) which is a profit of 40 A losing bet with Betfair resulting in us losing our exposure of ( 12.50*(4.0-1)) An overall profit of 2.50 ( ) If A.N.Horse loses, we have: A losing bet with Ladbrokes, resulting in us losing our stake of 10 A winning bet with Betfair, resulting in us profiting by our stake of An overall profit of 2.50 ( ) By selecting the stake we are guaranteed to make 2.50 profit regardless of the outcome. Notes: 17 October Page 6

7 1. The figures above aren t perfectly accurate because there is commission to take into account when placing bets on Betfair but this is omitted to keep things simple. 2. The difference in odds in the above example is unrealistic. It was chosen to make the example easy to follow. A more realistic example would be backing at 5.0 and laying at 4.7 which would guarantee a profit of 0.22 after commission. Throughout the remainder of this document, the term arb is used to mean the pair of bets placed to take advantage of the arbitrage opportunity. What are the risks involved? We ve just seen how we were guaranteed to make profit on the outcome of a horse race regardless of the outcome. That was a perfect scenario and as with everything in life, nothing is perfect. There are a few things that we need to be aware of that could upset things and make the arb unprofitable. Palpable errors are when a bookmaker posts an incorrect price to their website. Whilst uncommon, these errors do occur from time to time and the bookmaker almost always voids the bet. Because we re arbing, we had a paired lay bet on the exchange which will not get cancelled. This means that we have an open gamble at that point and could lose the exposure should the horse go on to win. Rule 4 market adjustments are used by bookmakers in the event of a non-runner. It is a mechanism that allows them to reduce the odds of bets already taken to take the non-runner into account. Imagine that a heavy favourite horse was withdrawn from a race. Suddenly the 2 nd Favourite becomes the favourite and the odds would need to be reduced substantially. Rule 4 allows them to adjust existing bets too. The problem is that Betfair use different rules, and adjust the lay bet by different amounts. This can result in a profitable arb becoming unprofitable. Unmatched lay bets occur due to the nature of how betting exchanges work. Bets on the exchanges are only matched if there is another user of the exchange prepared to take the other side of the bet. So if we want to lay a particular horse for 10, there must be someone prepared to back the same horse for 10 at those odds. If there isn t, the bet remains on offer until someone takes it. If no one takes it (because someone else offers better value) then the bet never gets matched. The result of this is that we only have the back bet with the bookmaker. If the horse wins, we win big. If it loses, we lose our stake. Human errors can occur if you re placing bets manually. It s easy to calculate or enter an incorrect stake or price and place a bet that that makes the arb unprofitable. Computer/Internet connection failures could cause problems if they occur in the middle of placing the bets for the arb. What is Arbs2U? Arbs2U is a service that finds arbitrage opportunities by continually scanning the odds offered by bookmakers and sends the details about them directly to the Arbs2U client software running on your PC. 17 October Page 7

8 When the software receives details of the opportunity, it checks that everything is still valid i.e. the prices have not moved and then automatically places the bets with the bookmaker and exchange on your behalf. This automatic placing of bets is what differentiates Arbs2U from other arbitrage services. The others rely on you being around to place the bets. Arbs2U allows you to go about your normal daily activities and leave it running in the background making you money whilst you re away. This software also takes away some of the risk discussed in the previous section. Palpable errors result in big differences between odds on the bookmaker and the exchange and so they are easy to spot. The Arbs2U server will not even bother sending these to your PC because it is very conservative on the allowed price differences. Because everything is automated, we can afford to be very selective in the opportunities we consider because the software can run all day without impacting on your busy schedule. In contrast, placing the bets manually would require that fewer but bigger % arbs were considered so that you could make more money for less expended time. Human error is completely eliminated by the Arbs2U software because all of the calculations are performed automatically and sent directly to the web sites without any human interaction. The software checks that all of the prices and money are still available on the bookmaker and exchange before placing any bets at all and will simply reject the arb if something has changed. In the event that a back bet is placed but then the lay bet goes on to be unmatched, the software enters a monitoring mode. Whilst in monitoring mode, no more arbs are accepted by the software this means there can only ever be one outstanding bet. Every few seconds, the state of the outstanding bet itself and of the market is examined. If the market suggests that it s likely that the bet may get matched, it is left unchanged. Most of the time, after a few seconds in monitoring mode the bet is matched and the software carries on as if it was a perfect arb. If the market suggests that the price is going to move further away from the price we want, the software adjusts the bet to take the price on offer. This is referred to as a stop-loss and is absolutely critical in any trading system. The Rule 4 issue can cause problems even when using the Arbs2U software but these events are rare and the losses incurred are more than covered by the profit made on other arbs. So even if one does strike, it s likely that the day will still be profitable overall. There is little that can be done regarding computer failure or internet connectivity issues. Having said that, the software has a safety mechanism built in that means the server stops sending any more arb opportunities to your computer if it detects any problem. This means that the worse case is one bad arb and so any loss incurred is kept to an absolute minimum. Using an automated service such as Arbs2U introduces another risk. It is possible that errors or bugs exist in the Arbs2U software that could cause a loss or even a total loss. Whilst I have done everything possible to ensure there are no bugs in the system, it is impossible to guarantee this. The absolute worst case is that something terrible happens and you suffer a total loss. 17 October Page 8

9 No matter how slight, and to be honest I can t think of a scenario where it would be possible, it is important that you understand there is this risk. It is a condition of running the Arbs2U software that you accept Arbs2U is not liable for any losses incurred. How much does Arbs2U cost? Arbs2U works on a Pay As You Go basis. Rather than have a rolling contract for a fixed amount per month, you prepay for credit. The prepaid credit is the actual profit you will make from the arbs. There are four different amounts of credit that can be bought and the costs are as follows: 10 buys 30 worth of credit/profit 30 buys 90 worth of credit/profit 100 buys 320 worth of credit/profit 300 buys 1000 worth of credit/profit Your credit balance reduces as profit is made from the arbs you receive. The software will continue to run until the credit balance has been reduced to zero. If the stop-loss mechanism is employed and a small loss is incurred, your credit balance is automatically increased to cover the loss. As you can see, Arbs2U take at most one third of your profit for providing the service. You can buy more credit/profit at any time from the website. This Pay As You Go method means that it doesn t matter how long it takes to make the profit, you only ever need to pay again when the profit has been made. If your computer is broken for three weeks, the credit will still be there when you get back up and running so you re not wasting money paying for a service you can t use. In addition to the money paid to Arbs2U for the service provision, you also need some capital that is deposited into the exchange and bookmaker accounts. Capital requirements In order to benefit from the Arbs2U service, you need some starting capital. This begs the question, how much? The question is not easy to answer but here we work through the topic and make some assumptions to arrive at a reasonable figure. First of all, let s assume we re using 5 stakes and get arbs at average odds of 6/1. This requires 5 for the back bet and 30 for the lay bet, a total of 35. Now let s assume that at any time, you have up to 3 outstanding arbs per bookmaker. That s 3 * 35 which is 105. Now bear in mind that as a result of each arb, money will effectively move from either your betting exchange account to the bookmaker (if the horse wins) or from your bookmaker account to the betting exchange account if it loses. 17 October Page 9

10 To hammer home this idea of money moving, let s consider the bet from earlier where we place our back bet at 5.0 for 10 and we place our lay bet at 4.0 for If A.N.Horse wins, we have: A winning bet with Ladbrokes giving a total return of 50 ( 10*5.0) which is a profit of 40, so our Ladbrokes account increases by 40 A losing bet with Betfair resulting in us losing our exposure of ( 12.50*(4.0-1)), so our Betfair account reduces by We effectively moved from our Betfair account to our Ladbrokes account At the end of each day (or possibly more often) you will need to check the current balance of your exchange and bookmaker accounts and deposit/withdraw money as required. There is often a 3-5 day lag when withdrawing money before it appears in your account. As a result of all this, you need to keep some money in reserve for topping up. Let s assume you need half the capital requirement per bookie as your reserve. So, in total, for 5 stakes you need per bookmaker. This is distributed as follows. 15 in the bookmaker account, 90 in the betting exchange account and kept in reserve to allow speedy top-up as needed. How much will I make? As I said at the beginning of this chapter, Arbs2U isn t a get-rich-quick scheme. I m sorry if that s a disappointment to you, but the truth is that Arbs2U is unlikely to make you rich but rather it will provide a low-risk additional income. It will give a return on your investment that far exceeds anything any of the banks can offer. Think of it as a high interest savings account rather than a way to make quick cash. Let s work through an example to get some idea of the return we can expect. First, let s list some assumptions we ll make: each fully-funded bookmaker will make 50p per day profit (by fully-funded I mean toppedup as discussed in the Capital Requirements discussion above) we have 10 fully-funded bookmakers there are 340 trading days per year (some bank holidays have no racing, some wintry days have many abandoned races) Our Gross Annual Profit would be calculated as 10 bookmakers * 50p per day * 340 days per year = From that you need to subtract a third for the cost of the Arbs2U service, leaving 1133 taxfree profit for the year. We calculated earlier that each bookmaker requires capital to start with, so for 10 bookmakers you would need starting capital of profit from a starting capital of 1575, gives a % return on investment very close to 72%. When you view it in this way, rather than as some get-rich-quick scheme the true value of arbitrage is clear. 17 October Page 10

11 This sounds too good to be true what s the catch? I realise that talking about 72% ROI whilst still offering low-risk seems hard to believe but it really is genuinely possible to make that return. In fact, when you take into account the introductory offers from bookmakers and the other offers they give you from time to time it is likely to be more profitable than the conservative example above. There really isn t a catch. However, there is one thorny issue that we haven t discussed yet. Bookmakers are operating a business themselves and do not take kindly to anyone who finds an edge to profit from them. Arbitrage is not illegal in anyway, but bookmakers do reserve the right to refuse bets and to close customer accounts for any reason they see fit. When the bookmaker realises that you are using arbitrage to profit from them, and trust me, they will realise this, they will heavily restrict your account (limit the stakes you can use) or close the account completely. It is entirely their right to do so and there is nothing you can do about it. They will return any money owed to you in this situation so you don t lose in that respect, but it does have a direct effect on the profit you make. It seems random as to how long you get before they restrict/close you down. Some people seem to run unaffected for weeks or months, others seem to be closed down within hours. This whole area is an ongoing battle, but it s fair to say the bookmakers are certainly winning that battle up to now. It is very disappointing and frustrating to have the account of a profitable bookmaker closed on you but unfortunately it s part of the game and you should always have the expectation that they ll catch you sooner rather than later. New bookmakers are being added regularly, and new markets will be built into the system in time so there should always be plenty of new bookmakers to move on to when you re closed. What do I need? To benefit from using the Arbs2U service you will need the following: Some starting capital as discussed above. A debit/credit card that can be used to deposit money into your exchange and bookmaker accounts. A funded Betfair account. Betfair is currently the only supported betting exchange so an account with them is mandatory. Note: Arbs2U currently only supports accounts using GBP currency. At least one funded bookmaker account from the list of supported bookmakers. The more bookmaker accounts you have the more arbs you will receive and consequently the more profit you will make. New bookmakers are being added regularly, at time of writing there are 12 supported bookmakers. Note: Arbs2U currently only supports accounts using GBP currency. 17 October Page 11

12 A PC running Microsoft Windows. The Arbs2U software has been tested on the following versions of Windows but any version after Windows XP should work fine. o Windows XP o Windows 7 (both 32 and 64 bit) o Windows Server 2003 o Windows Server 2008 o Windows Server 2008 R2 A broadband internet connection preferably wired. A good, reliable Internet connection is crucial as time really is of the essence when placing the bets. A slow or unreliable connection can result in lost opportunities and reduced profit. How do I get started? By now you should have a good understanding of what arbitrage is and how the Arbs2U service can be used to take advantage of the opportunities that arise. You should also understand the risks involved and how the Arbs2U software tries to reduce or eliminate those risks. If you ve read this far and are still interested in using the Arbs2U service then your next step is to have an Arbs2U account created so that you can download the client software. Please make sure you have everything in the What do I need? section above and then drop me an at fran@arbs2u.com and I ll set up the account. In the be sure to include: your Firstname your Surname the name of the person who referred you And please remember: It is a condition of running the Arbs2U software that you accept Arbs2U is not liable for any losses incurred. 17 October Page 12