Mastering Hedging And Arbitrage For Effective Risk Mitigation

• August 13,2024
• -
• Bruce Williams

Mastering Hedging And Arbitrage For Effective Risk Mitigation

Sports betting, and indeed gambling in general, involves taking risks and hoping it pays off. But did you know there is a way to place a 100% risk-free bet? Meaning a punter can make a wager where they are guaranteed to make a profit no matter the case. This is something that, to most people, may sound too good to be true - understandably so - but in this post, we are going to show exactly how a punter can achieve that. Hedging and arbitrage are two exciting sports betting strategies that give the punter the power to eliminate risk or at least mitigate it. These strategies are a must-know for any punter hoping to make consistent profits from betting.

Arbitrage Betting

There are situations where two bookmakers view a sporting event very differently. This means that they both expect a very different outcome from that event. The result is a huge discrepancy in the betting prices or odds they publish for the outcome. This phenomenon is best explained using a sporting example in which two alternate outcomes cover the entire possibility space. This simply means that one of the outcomes must happen - something like it’ll either rain or it won’t - because there isn’t a third option.

For example, in Newcastle’s match against Liverpool in the opening weeks of the 2023/24 Premier League season, many bookmakers offered the following prop bet: Alexander Isak (Newcastle) to Score. Now imagine a situation where a bookmaker expects Isak to score while another bookmaker, for whatever reason, does not expect this to happen. They could offer betting odds as follows:

Alexander Isak (Newcastle) to Score

Bookmaker X

YES NO

2.10 1.28

Bookmaker Y

YES NO

1.30 2.09

 

This is an example of an arbitrage opportunity. It’s not something that happens too commonly, but it can happen. Punters who can perform diligent research, sometimes going as far as using Arb finders and odds comparison services, can sometimes unearth these unique and profitable situations. One can place an arbitrage bet as follows:

 

Back Isak to score with Bookmaker X at odds of 2.10 using a certain amount, say $100.

Back the opposite outcome with Bookmaker Y - Isak not to score - at odds of 2.09 using the same stake amount - $100.

The total stake amount is $200 across the two bets. If Isak scores, the total profit would be ($100*2.10) - $200 = $10.

If Isak fails to score, the total profit would be ($100*2.09) - $200 = $9.

This way, the punter is guaranteed a profit ($10 or $9) no matter the outcome. That’s, therefore, a perfectly executed arbitrage bet!

 

Hedge Betting

Arbitrage betting assures the punter of a profit at 100% zero risk. Hedge betting, conversely, may not guarantee a profit but is a form of insurance against losing a primary bet. This can be perfectly illustrated using a parlay betting scenario. Let’s say a punter has made a parlay consisting of five individual bets, four of which have already been successfully settled. The fifth bet is a match that’s still underway. If the punter suspects that that fifth bet may prove unsuccessful, potentially ruining the whole five-match parlay, they can choose to hedge the bet. This is achieved by:

• Identifying an opposite outcome to the one predicted in the primary bet.

• The two outcomes should cover the entire possibility space.

• Placing a bet on the opposite outcome, such that the potential profit from the bet helps to cover or mitigate the potential loss from the primary bet.