Financial Spread Betting (page 6 of 9)

Risk Arbitrage

The dictionary definition of 'Arbitrage' is:

"The simultaneous buying and selling of the same negotiables or commodities
in different markets in order to make an immediate riskless profit"

Occasionally an opportunity can appear between different spread betting bookmakers allowing arbitraging between them to make a riskless profit.

For example, if one bookmaker quotes a spread of 310-315 for the grey market price of a stock of a company that is about to float on the stock market and another broker is quoting 330-335 there is the opportunity for arbitrage. You could place a £100 up-bet with the first broker and a £100 down-bet with the second. Then whatever happens to the price of the company once it floats you will make a fixed profit, risk free. There is a 15-point gap between 315 and 330, so you would make £1,500 profit (because of your £100 spread bet) no matter what happens to the company's actual share price.

E.g. if when you closed your positions the price stood at £3.50 your up-bet would have made you £3,500 (350 minus 315 times £100) and your down-bet would have lost you £2,000 (350 minus 330 times £100), giving your profit of £1,500.

Opportunities like this are rare, however. Bookmakers do not like people doing this and usually try and keep their spreads similar, if not identical, between themselves to limit the opportunities. However, opportunities do arise and if you are quick to notice them and act then arbitrage is possible.

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