So you are already up and running. You got familiar with the main risks and pitfalls and even managed to score a few profitable arbs without getting limited (yet). It is time to think about maximising profits with the capital you have available.
Your arbing profit is in reality your employed capital times your arbing returns. Therefore, these are the two things you have to pay attention to. Maximizing your returns is pretty straightforward. Your arbitrage service will give you the return of every arb pair delivered. You should just strive to get the ones with the highest return (of course, keeping palpable errors in mind). On the other hand, how do you go about employing the most of your capital? In this chapter I want to give a few insights on that part.
Increasing your turnover
When you are getting started with sports arbitrage money management is key, especially when you are tight on budget. You would like to avoid making too many transactions and it might possibly be you are betting on sharp bookmakers through a broker, so you need to be able to plan how much money you are going to need for each bookie or group of bookies.
Furthermore, in any given day you are arbing you will want to deploy your full bank as this is what will bring you the highest return on your capital. Imagine having a 10k budget split 5k in soft and 5k in sharp books. It runs well and at some point during the day you are out of money in the soft books but are still left with 2k in the sharp books. That means you have 10k available but you only used 8k for Sports Arbitrage and you cannot use more as a withdrawal of the other 2k might take days. That would be a pity. So what is your best approach?
Knowing that an arb normally involves a sharp and a soft book, splitting your budget 50:50 between softs and sharps would be a reasonable starting point. However, there are a few more factors to consider, as you are going to see.
Lose in sharps, win in softs
First, since sharps are more competent in setting the right coefficients, in the long-term you will expect at least in theory to win in soft books and to lose in sharps. In my experience this is true in practice as well, meaning you would need a bit more money for the sharp books as your balance there tends to decrease.
Perhaps you are also thinking now, what would happen if you just do not bet in sharps at all? You expect to lose money there, so why not cover only the part of the arbitrage in the soft book, wouldn’t that increase your expected profit? These are very legitimate questions and are in fact central to the theory of sports arbitrage. See my in-depth answer to this question in the following article. In short, I always prefer to cover my arbs as not covering is going to increase volatility tremendously and this is something I prefer to avoid.
Higher odds in sharps, lower odds in softs
So we know that it is more likely to lose money in the sharps and win in the soft books. Now, let us look at the odds. If we are getting the same average odds in both soft and sharp books, they would not play a role in our budgeting decision. However, that is usually not the case.
In my experience, in an arbitrage pair you will more often get the higher odds in the sharp book and the lower ones in the soft one. Meaning you will have to use more capital in your soft book and it has to be better funded than the sharp one. There are of course exceptions but on average the rule holds. So this is one factor in favor of funding your soft book accounts better.
When running out of money, be patient
Finally, when in a certain book you’re all out of money, give preference to arbs involving higher odds in the same book, even when the returns are a bit smaller. You might have to wait a bit for those, but since you are out of capital it is not that urgent to place arbs right away anyway. Your total profitability would improve even when you take lower return arbs since this return will come on a larger pile of capital.
Taking all of the above factors in mind, you have to decide how to optimally split your capital. I cannot give you the exact numbers as that really depends on the markets you are arbing on, but you must aim at the optimal distribution in order to maximize your employed capital and improve your returns. You will get a good feeling for that with the passage of time. Just keep in mind that maximum capital * maximum return = maximum profit.
The article above is just another chapter from the Sports Arbitrage guide that I am preparing and will publish quite soon. Since I know this stuff is interesting to you I give it to you here as well so you don’t need to wait until I’m done with all the structure and formatting. But the material is growing bigger and bigger every week and I think it will make for a nice and comprehensible strategy guide.
I continue to work on the review of the Trademate Sports software. I have already collected a total record of around 2500 bets of which 500 in sharp books. Not bad in itself, but I am hoping to gather at least double that to have a reliable sample. As the guys from Trademate themselves say, you should compare your monthly and not your daily returns. I stand by that and continue to gather data in order to be able to present to you the full picture. So if you are looking forward to this, please be aware that it will take some time but you might be sure I will not compromise with the quality of the analysis. Just follow my Twitter, Facebook and Google+ pages you will be among the first to get it.