Basically, the idea behind Arbitrage is to buy at a low price and sell at a high one.
The application in Horse Racing (or any other betting proposition) is to Lay at low odds and Back at at high odds.
Naturally, things are a bit more complicated than that, and one of the issues is how much money to risk when backing and laying.
For example, say you back a horse to a stake of £100 at 3.00 (2/1 - in the rest of this page we'll use Decimal odds).
Say you then lay the horse at 2.00, again for a stake of £100.
If the horse wins, the profit on your win bet is £200 and the loss on your lay bet is £100 - you've gained
a net profit of £100.
If the horse loses, the loss on your win bet is £100 and the profit on your lay is £100 - you haven't lost
anything, but you haven't gained anything either.
For many people this is perfectly satisfactory -
after all you've had the chance to gain £100 for zero risk.
But, suppose in the foregoing example you had, as previously, backed the horse to a stake of £100 at 3.0, but then, when
the horse was available to lay at 2.0 you had layed it for a stake of £150
Now, if the horse wins, the profit on your win bet is again £200 but the loss on your Lay bet is £150.
Your net profit is reduced to £50.
BUT, If the horse loses, the loss on your win bet is £100 but the profit on your lay bet is £150 - a net profit
So you make the same net profit whether the horse wins or loses.
Now that was an easy example using nice round figures,
but suppose you've backed the horse to a £100 stake
at 2.73 and you have the opportunity to lay it at 1.9.
How much should your Lay stake be to equalise your profit whether the horse wins or loses?
Well, there's a formula: |
Lay Stake = Back Stake * Back Odds / Lay Odds
So, in the example above, to equalise your profits whether the horse wins or loses, your Lay Stake should be:
100 * 2.73 / 1.9 = £ 143.68
and your net profit, whether the horse wins or loses, will be £43.68.
Similarly, if you've already Layed a horse (say £100 at 2.7), but now see an opportunity to back it at longer odds (say 3.3):
Back Stake = Lay Stake * Lay Odds / Back Odds
e.g: 100 * 2.7 / 3.3 = £81.82
for a guaranteed profit of £18.18
Now, you may be Mensa founder member, but we're not, so to simplify these calculations we've made the little calculator on
the next page.
It also works out your profit after paying commission to those nice people at Betfair!
There's also a downloadable Spreadsheet that does the same job here
Can't be bothered with the Sums? Use our mini-calculator:
No Flash? No Problem. Use our PopUp