Monday, December 7, 2009

Online Investing With Sports Arbitrage and the Dangers Faced by Individual Investors

Online Investing With Sports Arbitrage and the Dangers Faced by Individual Investors


One of the main selling points to sign people up in Sports Arbitrage Trading is that it is a Risk Free Opportunity. This is partly true. Once the Arbitrage Trade is confirmed then you will be guaranteed a return and hence it becomes risk free. The problem therefore arises before you finally commit to the arbitrage trade and that's what I want to explore in this article.

There are five key reasons why you may not be able to successfully execute an arbitrage trade with a guaranteed profit. Whilst most companies who market Sports Arbitrage Trading will make some reference to some of these reasons it is not in their interest to put too much emphasis on the downsides that they represent, hence anyone thinking of getting involved in Sports Arbitrage Trading needs to be especially diligent.

I started Sports Arbitrage Trading some years ago and fell foul of most of the issues I describe in this article at some stage. My aim is not to deter people from Arbitrage trading as, if done correctly, it can be a profitable business but I am keen to ensure that new traders are aware of potential pitfalls.

In summary the 5 reasons are:

1. Bookmakers restrict how much you can trade
2. Odds change such that the arbitrage no longer exists
3. Bookmakers have different cut-off times for trades to be placed
4. Bookmakers have different rules for certain sports
5. Money Management

Let's now explore each one in more detail:

Bookmakers restrict how much you can trade

In general most bookmakers welcome clients even though they might realise that they are arbitrage traders. They realise that whilst in some instances the wager placed with them might win there is also an equal chance (strictly speaking of course the odds on offer should reflect the true chance) that it would lose, hence they would make a profit. So, whilst they may not publicly acknowledge that arbitrage traders are encouraged they recognise that it will bring business and ultimately enhance their reputation by having a growing and active client list.

Some bookmakers however can be more guarded in their acceptance of clients. In my personal experience I ended up with two bookmakers who limited the amount I was allowed to place on any wager as they had monitored my wagering activity and believed that the pattern of trading was suspicious. Now, I must state immediately that I was in no way placing large wagers. My bets would be in the region of $300 as a maximum which in betting terms is of little real consequence. Despite this two bookmakers imposed limits on how much I could place, in one instance I was limited to $20 per wager which clearly drastically limited any potential for a reasonable profit.

You might say of course that all I needed to do was to avoid trading with those bookmakers but this was difficult given the fact that the trades notified to me involved these bookmakers on a regular basis so I would have severely restricted my trading if I removed these two bookmakers.

Ironically of course I know of many arbitrage traders who wager much larger sums of money than I wanted to with these same bookmakers but who have had no problems whatsoever.

Odds change such that the arbitrage no longer exists

In the type of arbitrage trading that I was doing the opportunities to profit would only be available for a short time. The software I used had direct feeds from the bookmaker websites, it then did the relevant calculations to then present me with arbitrage opportunities.

If you were not quick enough you could find that having placed one side of the trade when you went to the other bookmaker site the quoted odds were no longer available and you were left with the potential of a loss on the trade.

In these circumstances the advice is to 'hedge' your trade. In simple terms this means finding a bookmaker where the odds on offer would result in you breaking even or at least minimising the potential loss. The problem of course is that to take advantage of the odds on offer you would need to have sufficient funds with the particular bookmaker and that can sometimes be a problem (see Money Management below).

To help you find odds that could be used you should refer to a site such as Odds Checker where they compare odds from a range of bookmakers.

Bookmakers have different cut-off times for trades to be placed

Ordinarily many of the trades that you are presented with give you sufficient time before the event starts to place the trade and profit. Sometimes however if you are not careful you will place one side of a trade only to find that the other bookmaker has closed the book because their rules have determined that the time left before the event starts is not enough for you to place a wager.

If this happens you are again at risk as you only have one side of the trade placed and the risk may be increased as you may find it very difficult to find a bookmaker to place with as clearly the event is very close to starting.

Admittedly, if you are diligent in how you trade you should not fall into this particular trap that often, if at all, but it is at least bearing in mind especially when you remember that often you will be in a different time zone to where the event is being held.

There are websites such as Yahoo Sports that will prove invaluable in helping you getter a much clearer picture on when a particular event is about to start.

Bookmakers have different rules for certain sports

This issue is primarily related to Tennis although to a lesser extent rules for Baseball can also impact your ability to trade profitably. For the purposes of this article I will focus on Tennis.

Tennis is generally either one or two people matched against a similar number of opponents. This brings with it the risk that one player may not be able to finish a match, often because of injury. If this happens the player(s) who are able to continue would therefore be declared the victors.

The problem of course is predicting when any match might be terminated early. Bookmakers have addressed this by laying down rules as to when they consider that a match is valid i.e. it has progressed enough for the result to stand.

Unfortunately for us as clients the bookmakers do not all apply the same rules and if you place wagers with wildly differing rules you could end up with a losing trade which could prove costly.

As tennis is a particularly good sport for arbitrage opportunities it is very important to ensure that you only place trades with bookmakers who have similar rules.

Clearly no tennis player wants to forfeit a match so matches stopped part way through are not that common, hence as a trader you may decide to ignore the difference in rules and trade anyway. The decision would be yours, the risk may be slight but it does exist and if you have a limited bank then perhaps being conservative in your trading strategy might be the wise course of action.

Money Management

Unless you have a sizable disposable income available to you the chances are that you will have to start arbitrage trading with a limited bank. If this is the case then it is important that you study carefully which bookmakers are providing the most arbitrage opportunities so that you place your funds wisely.

As you start to trade you will soon notice that management of your money can be a key issue. By it's very nature an arbitrage trade will end up where one of your wagers has lost and one has won. So, for the winning side of the trade the amount of funds with that bookmaker will increase and conversely your funds with the losing bookmaker will decrease.

It doesn't take much to appreciate that if you have a streak of winners with one or two bookmakers then your funds may now be unevenly distributed and will therefore restrict you from perhaps trading all the opportunities that you would like to.

One recommendation is to keep part of your overall bank back so that if this situation arises you will have some funds still available to top up the bank in the losing bookmakers. This works to a certain extent but again with a limited bank overall it may not always be possible.

The problem is compounded by bookmaker rules that can place restrictions on how may withdrawals you can make from your account in any given time period. Whilst additional withdrawals may be possible they will often come with a hefty fee attached and any profits that you have made could be reduced significantly.

In conclusion I still believe that Sports Arbitrage Trading has a lot to offer but for an individual it is difficult. I'd recommend that you research online investment companies where you can invest but they do the work for you. This is a much safer option and can still provide very healthy returns.

For more great tips on online investing you can visit my blog at http://www.onlineinvestingguru.com
From John Murphy and Online Investing Guru

Article Source: http://EzineArticles.com/?expert=John_W_Murphy

John W Murphy - EzineArticles Expert Author

42 comments:

Blake said...

Thank you for sharing such informative post. Arbitrage trading can be very lucrative. The main reason as to why a lot of individuals avoid arbitrage trading or regard it as a poor investment vehicle is because it can be very complicated and would require a lot of experience to really make it worthwhile.

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