Could A Real Smart DUER Explain To Me The Arbitrage Opportunity At Intrade Over Betfair

[DemocratSinceBirth]

Given O is selling at $66.00 at Intrade and $78.00 at Betfair?


Does that mean I can sell my Betfair at $78.00 and get a lot more Obama shares at intrade at $66.00?

[exboyfil]

1. You would have to have accounts at both betting

sites. The price difference is an indication of an inefficient market with some sort of friction. Obviously if you had both accounts, and you trust the sites to pay off, then you should bet everything you got to make a nice guaranteed profit. You should probably buy Romney shares at $22 at Betfair and Obama shares at $66 at Intrade. Romney wins you pocket $12. Obama wins you pocket $12. If you can short then do as you suggest as well (it works the same way). I would expect that it would be slightly less for the cost to operate the market and a profit for those operating it.

Still a nice arbritrage opportunity.

[DemocratSinceBirth]

2. So

Does that mean I can make money with no risk?

[exboyfil]

4. The friction exists for a reason

I haven't a clue about these two markets, but I may do some investigation on my home computer this weekend. My knowledge of arbritrage comes from textbooks. The only time I ever took advantage of it was when I bought a bunch of inflation adjusted treasury bonds that were going at the same price as the regular treasury bonds and that was not true arbritrage. Those bonds serve as the floor of my inflation protected investing. In hindsight I should have loaded up on equities instead.

Will they pay off is your big question?

[DemocratSinceBirth]

3. This Would Have Been Easy Money

gordy wrote on Nov 02, 2012 13:11:04 #
In reply to lonehuon's comment on Nov 02, 2012 13:01:31 who wrote: Can someone go into Arbitrage for me, I think I have the ...

You should bet such that whichever candidate wins you get the same payout. So say at the moment for example it's 7/2 on oddschecker (22.2%) but you can sell at 3.3 on intrade. By betting $100 on Romney at 7/2 and selling 45 shares of Romney here, you have a stake of $301.50 here and a stake of $100 elsewhere, so 401.50 total.

When the election comes in, if Obama wins you'll get a payout of $450 from Intrade (stake + 45 * 3.3) and you'll lose your stake elsewhere. If Romney wins, you'll get a payout of $450 elsewhere and you'll lose your stake here. Either way, you just won $48.50.

[geek tragedy]

5. Arbitrage would be buying Romney at Betfair

and Obama at Intrade in an appropriate ratio such that you have zero risk of loss but rather a guaranteed profit. This also assumes zero transaction costs.

[DemocratSinceBirth]

6. So It's More Of A Straight Investment Than Gambling

It would be like you giving me $100.00 to buy a rain coat and I can choose between Target, Neiman Marcus, and Wal Mart to buy it.

[exboyfil]

7. The only gamble is getting a payout from both betting houses

I did research and their is an article http://www.pbs.org/newshour/businessdesk/2012/10/how-to-make-money-on-the-presi.html


It appears that U.S. citizens can't participate in Betfair according the article. Let's say that is correct.

Think about this way:

US citizen can only use Intrade

EU citizen can do Betfair and Intrade

This situation would have a tendency to overstate the leader's odds in both markets. The EU money will rush in to buy the cheaper Obama shares to hedge the purchase of the cheaper Romney shares.

The amazing thing is that it is a structural situation. Look at http://www.predictwise.com/politics/2012presidentindividual

Am I missing something? I am seeing making $11 for every 89% invested (12% immediate profit).

[geek tragedy]

9. It's neither, it's exploiting market irrationality for a profit with zero risk. More

like derivatives trading.

The irrationality here is that Obama can't be both 66% and 78% likely to win.

[gravity]

8. Should be easy money

I think the discrepancy comes from both markets being illiquid to American investors. Intrade is really the only betting site known for Americans and the market traders tend to lean Republican. Europeans use other betting sites and have different views of the race.

Maybe professional traders and market makers don't see the gambling sites to be reliable enough and don't think the profit potential is worth the risks.

[jcgoldie]

10. I can't believe intrade is still only at 67%

Given the plethora of solid evidence on the election it seems like easy money... unfortunately I have none to invest... whats new?