What is matched betting?
In my previous post,
I found a curiosity:
an asset with different prices in two different betting exchanges.
This can be used to turn a guaranteed profit,
and in this post I show you how!
Consider the question: “Will Donald Trump be president at year-end 2019?”
Just like betting on sports,
you can bet on the answer to this question.
On PredictIt,
the market estimates the probability of “Yes” at 90-91%.
But on BetFair,
the market estimates the probability at 94-95%!
We can exploit this difference in beliefs
to turn a guaranteed profit,
through the magic of matched betting!
Because the PredictIt market thinks it’s less likely
that Trump will still be president,
they’re willing to offer a better return on “Yes”,
so we’ll buy some “Yes” at PredictIt.
Conversely,
BetFair offers a better return on “No”,
so we’ll buy some “No” at BetFair.
But how much should we buy?
First,
I’ll show you the magic numbers
for how to make a guaranteed profit,
and then I’ll show you how to calculate them.
Here’s what we should buy:
- $850 of “Yes” at PredictIt.
- $58.38 of “No” at BetFair.
If we purchase this,
how much profit will we make?
The cost is $850+$58.38 = $908.38,
but what’s the revenue?
The revenue depends on
whether Trump is still president at the end of the year.
- Case A:
If Trump is still president,
we make our revenue from PredictIt.
We bought 934 shares, at 91¢ each, and each yields $1.
This gives us a revenue of $934.
- Case B:
If Trump is not still president,
we make our revenue from BetFair.
We bought $58.38 at odds 16.00,
making revenue of 16 * $58.38 = $934.
(Plus 8¢ change due to a rounding error.)
In either case, the revenue is $934.
Minus our costs, our guaranteed profit is $25.62.
Magic!
But where did those magic numbers $850 and $58.38 come from?
First, we fix one of the numbers.
It turns out that PredictIt only allows you to bet up to $850 in one market,
so we fix our PredictIt purchase at that maximum.
Then we choose an amount to bet at BetFair
such that the profit in either case is the same.
We can formulate some equations to solve:
P := profit we'll make in either case
Bb := amount to bet at BetFair
Bp := amount to bet at PredictIt
Ob := odds at BetFair
Op := odds at PredictIt
P = Bp*Op - (Bp + Bb) // profit in Case A (Trump is still president)
P = Bb*Ob - (Bp + Bb) // profit in Case B (Trump is not still president)
Bp*Op = Bb*Ob // combine simultaneous equations
Bb = Bp*Op / Ob // solve for how much to bet at BetFair
Bb = 850 * (1/0.91) / 16 // plug in the real-world numbers
Bb = 58.38 // this is how much to bet at BetFair
In the world of betting,
this technique is called matched betting.
In the world of trading,
this technique is called arbitrage.
Arguably,
your profit is derived from the service you provide
of transferring information
from one market to the other.
More by Jim
What does the dot do in JavaScript?
foo.bar
, foo.bar()
, or foo.bar = baz
- what do they mean? A deep dive into prototypical inheritance and getters/setters. 2020-11-01
Smear phishing: a new Android vulnerability
Trick Android to display an SMS as coming from any contact. Convincing phishing vuln, but still unpatched. 2020-08-06
A probabilistic pub quiz for nerds
A “true or false” quiz where you respond with your confidence level, and the optimal strategy is to report your true belief. 2020-04-26
Time is running out to catch COVID-19
Simulation shows it’s rational to deliberately infect yourself with COVID-19 early on to get treatment, but after healthcare capacity is exceeded, it’s better to avoid infection. Includes interactive parameters and visualizations. 2020-03-14
The inception bar: a new phishing method
A new phishing technique that displays a fake URL bar in Chrome for mobile. A key innovation is the “scroll jail” that traps the user in a fake browser. 2019-04-27
The hacker hype cycle
I got started with simple web development, but because enamored with increasingly esoteric programming concepts, leading to a “trough of hipster technologies” before returning to more productive work. 2019-03-23
Project C-43: the lost origins of asymmetric crypto
Bob invents asymmetric cryptography by playing loud white noise to obscure Alice’s message, which he can cancel out but an eavesdropper cannot. This idea, published in 1944 by Walter Koenig Jr., is the forgotten origin of asymmetric crypto. 2019-02-16
How Hacker News stays interesting
Hacker News buried my post on conspiracy theories in my family due to overheated discussion, not censorship. Moderation keeps the site focused on interesting technical content. 2019-01-26
My parents are Flat-Earthers
2019-01-20
The dots do matter: how to scam a Gmail user
Gmail’s “dots don’t matter” feature lets scammers create an account on, say, Netflix, with your email address but different dots. Results in convincing phishing emails. 2018-04-07
The sorry state of OpenSSL usability
OpenSSL’s inadequate documentation, confusing key formats, and deprecated interfaces make it difficult to use, despite its importance. 2017-12-02
I hate telephones
I hate telephones. Some rational reasons: lack of authentication, no spam filtering, forced synchronous communication. But also just a visceral fear. 2017-11-08
The Three Ts of Time, Thought and Typing: measuring cost on the web
Businesses often tout “free” services, but the real costs come in terms of time, thought, and typing required from users. Reducing these “Three Ts” is key to improving sign-up flows and increasing conversions. 2017-10-26
Granddad died today
Granddad died. The unspoken practice of death-by-dehydration in the NHS. The Liverpool Care Pathway. Assisted dying in the UK. The importance of planning in end-of-life care. 2017-05-19
How do I call a program in C, setting up standard pipes?
A C function to create a new process, set up its standard input/output/error pipes, and return a struct containing the process ID and pipe file descriptors. 2017-02-17
Your syntax highlighter is wrong
2014-05-11
Tagged #betting. All content copyright James Fisher 2019. This post is not associated with my employer. Found an error? Edit this page.