The concept of Arbitrage in sports markets: Are they bets you can’t lose?

In economics, finance and sports, arbitrage is the concept of taking advantage of a cost difference between two or more markets: striking a mix of matching trades that  capitalize upon the difference, the profit being the difference within market prices.

When utilized by academics, an arbitrage is usually a transaction which involves no damaging cash flow at any probabilistic or temporal state along with a positive cashflow in a minimum of one state; basically, it’s the possibility of a risk-free profit at zero cost. In effect free money from bets where zero risk existed.
In banking markets this is known as ‘Arbitrage’. In gambling markets it is known as Matched Betting.

In principle and in academic use, an arbitrage is risk-free; in common use, as in statistical arbitrage, it might relate to predicted profit, though losses may manifest, and in practice, there are always risks in arbitrage, some minor (for instance change of prices decreasing income), some major (for example devaluation of the currency or derivative).

In academic use, an arbitrage involves benefiting from variations in cost of a single asset or identical cash-flows; in common use, it is usually utilized to focus on differences between equivalent assets (relative value or convergence trades), for example merger arbitrage.

Those who practice arbitrage are called arbitrageurs perhaps a bank or brokerage firm. The phrase is principally related to trading in financial instruments, such as bonds, shares, derivatives, goods and currencies.

Specific sport arbitrage has additionally recently become feasible due to the accessibility to world-wide-web bookmakers offering up widely diverging odds on sports making situations where you’re able to place bets that cannot lose.

Although this involves bookmakers it’s not at all gambling as there is no risk on the initial stake which cannot be lost.

Arbitrage just isn’t simply the act of buying an item in one market and selling it in another for a better price at some later time. The trades must transpire simultaneously to avoid exposure to market risk, or even the risk that prices may change in one market before both trades are complete.

In practical terms, this can be generally only possible with securities and financial products which may be traded electronically, and even then, when each leg of your trade is implemented the values available in the market could have moved.

Missing one of the legs from the trade (and subsequently having to trade it immediately after at a worse price) is known as ‘execution risk’ or more specifically ‘leg risk’.

“True” arbitrage requires that there be no market risk concerned.