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| Author: Timothy Rohrer |
Copyright 2006 Timothy Rohrer
The Wikipedia defines arbitrage as the practice of taking advantage of a state of imbalance between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. Although is sounds complicate, it is really not. For example, if I went to the store and brought a popular toy on sale for $10, and then sold it on eBay for $40 that is arbitrage. The $30 difference that I made would then be considered arbitrage profit. This type of arbitrage falls under the category of "one good, two markets". While it can be very lucrative for a short time, it does not last very long. Eventually one of three things will happen: the store is going to run out of toys, the store is going to raise the price of the toy due to increased demand, or eBay is going to become inundated with the toy and the value will decline.
This "one good, two markets" type of arbitrage is also very common in the world of sports gambling. Betting arbitrage is a kind of arbitrage that hinges on betting markets due to either bookmaker's different opinions on event outcomes or plain errors. By placing one bet per each outcome with different betting companies, the bettor can make a profit. For example , if the Ravens are playing the Raiders. You find a bookmaker that is giving even money on the game, so a $100 bet placed on either team will earn you $100 if the team you picked wins. Another bookmaker has the Ravens at +200, which means if you place a $100 bet with this bookmaker on the Ravens to win, you will get $200 if they win, and $100 if they lose. You can guarantee yourself a profit by placing a $300 bet on the Raiders with the first bookmaker at even odds; and then placing a $200 bet on the Ravens with the second bookmaker at +200. In football there are no ties. So either the Raiders will win, or the Ravens will win.
The slang term used by betters for an arbitrage is an arb. A typical arb is around 2%, often less, but 4%-5% are also normal and during some special events they might even reach 20%. Arbitrage betting is usually done on the internet by researching prices (odds) on betting web sites or subscribing to one of the arb-hunting services. Like any investment, it is not completely risk-free despite the fact that is often advertised that way. Price changes could occur midway through the arbitrage bet, bookmakers could refuse to honor the wager, and/or bookmakers are sometimes unable to remain solvent. It also requires rather large sums of money to make a significant profit. |
Author Bio:
Tim Rohrer is an established author and home business owner. To learn more about a profitable home business, visit www.profitmasterworld.com |
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