Gamble to Win and Lose… and Win
Jolted out of my savings inertia by the paltry 0.75 per cent I was getting on my LLoyds ISA, I have decided to experience with another tax efficient trading vehicle – spread gambling (!). To be more accurate, the practice I am writing about is not strictly gambling but rather ‘spread betting arbitrage’ – the technique of betting on all outcomes of a specific event, when the different prices available from different spread betting companies means this will result in a risk-free bet!
The job involves sitting in front of a computer screen most of the day, so instead of messing around with a myriad of online distractions, you really have to put in the time. It is also easy to make mistakes – what with fat fingers and all! It’s very simple to hit ‘buy’ instead of ‘sell’, and the bid-offer spreads can change mid-trade, and spread betting companies can of course limit how much you can spreadbet and unbalance a transaction (you also can’t brag aloud in case some as companies frown on this practice and may decide to close your account). All these issues can be sorted once you know what you’re doing.
While the quotes listed on spread betting provider websites reflect the underlying price movements of the instruments they are based on, they are not always identical. In fact the prices quoted by different spread betting firms can sometimes differ and although rare, such discrepancies do happen every once and then and when it does you can use a technique commonly referred to as arbitrate to make guaranteed returns.
Arbitrage Spread Betting is in fact a guaranteed type of betting on which the gambler is performing a similar bet with two different bookmakers providing different odds which will eventually guarantee a profit regardless of the result of the bet.
A spread betting arbitrage usually have an account with many bookmakers or financial spread betting services in order to have as many possibilities for a single bet as possible.
How it is done
The way arbitrage spread betting is done is basically choosing a specific bet, if we take financial spread betting for the example and we choose the oil price as the bet type and we choose 2 financial spread betting services:
Service A: Offers a spread of 69 – 72 as the oil price (in USD).
Service B: Offers a spread of 65 – 68 as the oil price (in USD).
The bet will be placed for an identical amount on the same bet with the two different services whereas it doesn’t matter how the bet ends, one will lose and one will win but the profit will cover for the loss of one of the bets and make the bettor a nice profit.
Arbitrage Spread Betting: Another Example:
Let’s take the case of one spread betting company quoting a buy price for a stock of 122p and a sell price of 118p, while another provider is offering the same stock for a buy price of 117p and a sell price of 121p. As the sell price with the first provider is higher than the buy price with the other company, you can guarantee a return as long as you place a sell spread bet with the higher priced provider and a buy bet with the lower priced provider. In essence, if you can buy at 117p and sell at 118p, you will be guaranteed a profit. Thus if the stock were to rise in value, you would lose your ‘sell bet’ (the short bet) and win your ‘buy bet’ (the long bet); and the winning from the buy bet would offset the loss from the sell bet. In a similar way, if the stock feel in value, your sell bet would return you more than the amount you would lost with the buy spread bet, again due to the price differential.
Arbitrage betting requires a lot of preparation work, knowing the odds in several bookmakers before placing the bet and of course managing active betting accounts in various sports books or financial spread betting services. Obviously, spread betting firms are aware of this phenomenon and will do everything they can to prevent this, so they do keep a look on the price of other spread betting providers, and are quick to correct their prices in the event of arbitrages. A spread betting arbitrage is a bettor who takes no risks when placing a bet. Always counting on sure bets and a guaranteed profit.
The theory works, but what about the practice? To work as an investment strategy you need to open multiple spread betting accounts, fund them, and also find lots of these arbitrage opportunities. These don’t hang around for long, and what with the growth in spread betting and the competition from other traders. such opportunities don’t last for long. Having said that this strategy (arbitrate) is not illegal, and you will not suffer any consequences for doing so.
The bookmakers and financial spread betting services don’t like arbitrage betting, they prefer the traders who place bets based on guts feeling. It’s actually difficult to be a spread betting arbitrage as the services usually coordinate the odds and by doing so they prevent the spread betting arbitrage from doing whatever he pleases.