Lesson # 3

Reduced minimum stakes

This section is for the cautious investor who wishes to stake less than the minimum allowed by the betting exchanges.  On Betfair, for example, the minimum stake is £2 per bet.  Note that the minimum is applied to the stake and not the liability.  To illustrate this point, suppose that you layed a horse to lose and the lay odds were 100.0  Your liability on the bet, should the horse lose, would be (100 - 1) x £2 = £198.  To reduce your liability, you could place a £3 bet on the horse to lose followed by a £2 bet on the horse to win.

What has this achieved?

Effectively, you have placed a £1 bet on the horse to lose and reduced your liability, should the horse lose, to (100 - 1) x £(3 - 2) = 99 x £1 = £99.  So, if the horse loses, you only lose £99 instead of the £198 you would have lost had you placed the minimum allowed £2 stake.  There is a down-side to this strategy, however.  If the horse wins, you would only win £1 instead of the £2 you would have won had you placed the minimum £2 stake.

Using this strategy, you have placed less than the minimum £2 stake on a horse.  It should also be noted that on all betting exchanges, at any one moment in time, the odds to lay a horse to lose are always greater than the odds to back a horse to win.  Therefore, the above calculation will only be true if, at the time the win bet was placed, the odds to back the horse had increased to 100.0.

Also, the odds may decrease between placing your lay bet and your win bet.  This would increase your liability beyond the anticipated £99.

Multiple Arbitrage

Throughout this article, we have referred to the arbitraging of one horse on one occasion.  There is nothing to prevent you, however, from arbitraging one horse multiple times, arbitraging multiple horses once or indeed arbitraging multiple horses multiple times.  Here is an example:

A friend of yours e-mails you.  A friend of his is a stable lad.  The stable lad has told your friend about three horses that are running in the 3:30 at Sandown this afternoon.

The first horse is called Purple Patch.  It did some exceptional work on a training gallop two days ago.  The horse is fit and raring to go.  If it doesn’t win, it will come close.  It is definitely worth an ‘each way’ bet.  Its odds, at the moment are 10.0.  It is fifth favourite.

The second is Bank Balance.  Although this horse easily won its last race ten days ago, it has not been training well of late and may benefit from a rest.  Its last race apparently took more out of the horse than was originally anticipated.  Bank Balance is therefore unlikely to run well.  It is currently the race favourite at odds of 2.5.  Its favouritism is purely based on its last race.

The third is Arbit.  In his last race, Arbit came second behind a very well regarded horse who has since gone on to record another win.  That race took a lot out of Arbit and it would probably benefit from a rest.  As a result, it is very likely that Arbit will finish close to the back of the field.  It is currently second favourite in the betting at odds of 4.0.  This is largely based on its last performance.

Your friend tells you that the information about the three horses is not widely known at the moment.  As such, their odds do not fully reflect this information.

Based on your friend’s comments, you decide that when the information that he gave you becomes widely known, and knowing your friend - it will, the odds on Purple Patch will fall and the odds on Bank Balance and Arbit will increase.

You therefore place the following bets on a betting exchange:

Bet 1.  £5 win bet on Purple Batch at odds of 10.0.
Bet 2.  £10 lay bet on Bank Balance at odds of 2.5.
Bet 3.  £10 lay bet on Arbit at odds of 4.0.

You then send e-mails to all of your friends giving them the information, knowing that most of them will pass the information on to their friends.

One hour later, you visit the betting exchange again.  You notice that the odds on Purple Patch have fallen from 10.0 to 3.0 and it is now favourite.  The odds on Bank Balance have increased from 2.5 to 9.0 and the odds on Arbit are now 10.0, from 4.0.  You therefore place the following bets on a betting exchange:

Bet 4.  £10 lay bet on Purple Batch at odds of 3.0.
Bet 5.  £5 win bet on Bank Balance at odds of 9.0.
Bet 6.  £5 win bet on Arbit at odds of 10.0.

Now let’s look at the net effect of the six bets:

The amount of profit that is made depends on which horse wins. Again, this is best expressed in the form of a table:

The stakes associated with bets 1 - 6 could have been amended such that no matter which horse wins, the profit will be exactly the same.  Given that the calculations and method to achieve this are somewhat complicated, it will be covered in a future article.  The method, for those interested, is called ‘Dutching’.