How to Reduce Risk in Betting?

Oct. 4, 2020 by SportsBettingQuant

There is a famous saying "No risk, no profit" which is very true and also applicable to sports betting and trading. But what about surebets or arbitrage betting? Yes that also involves certain risks. In this article I would like to go through the individual components that are involved in online betting, cover the risks and bring up some ideas of risk management and how certain risks can be mitigated when betting online.

Which Risks Are You Exposed to When Betting Online?

Before we look at risks that are involved when placing bets, we will first look at the components that are required when placing bets online. The following illustration shows which systems are involved when you place an order online:

First of all there is you who is deciding that a bet is placed. The bet can be caused by some gut feeling, by following some sort of betting or trading strategy or even through a betting bot. In the end it comes down to a human factor - you. You also need some hardware platform to place the bet, this could be your PC, a smartphone or a VPS running your betting bot. Connectivity is required to to communicate with the bookmaker or betting exchange. On their site again they use some hardware to run the bookmaker or betting exchange software.

Bookmaker and Betting Exchange Related Risks

In order to place any bet you need a counter party which in most cases will be a bookmaker or someone on a betting exchange.

Counterparty Risk When Using Bookmaker or Betting Exchanges

Before you can place any bet online you need to deposit money into your betting account with a bookmaker or betting exchange. Technically you are transferring funds from your account to the account of the bookie or betting exchange. This imposes a counterparty risk meaning that the other party may not fulfill their obligations. In plain English the bookie may file for bankruptcy or just disappear with your money.

How can you reduce the counterparty risk when betting online? Probably there is not much you can do apart from staying with reputable offers (ideally registered in countries with some level of legal safety). In addition to that you should not deposit too much into your account, only what is really required according to your betting system and money management.

Website Offline / Going Down

When frequently trading or betting online you already might have come across a situation where you placed an order with a betting exchange on a certain event and suddenly, when things move into your direction, the betting exchange is offline and you can't place any orders anymore or green up. This is very frustrating especially when larger stakes are involved. The good news is that from a statistical point of view profit and losses in case of service interruptions should cancel each other out.

The best thing you can do to mitigate this risk is to use multiple betting sites so that in case of an interruption in service you could switch and hedge your positions using another bookmaker or betting exchange.

Bugs in the Bookie or Betting Exchange Software

In the end the software that a bookmaker or betting exchange uses is written by a human and humans make mistakes. Typically you can expect that software is tested to reduce the risk of bugs but there was a famous incident on Betfair in 2011 where a Betfair user was apparently able to place a bet with around 600m liability whilst only having around 1000 in his account.

How can you protect yourself against software bugs when using bookies or betting exchanges? Well there is not much you can do I guess apart from relying more on well-established services that have a larger user base. Not a guarantee that they don't have any bugs but maybe less of a risk that it hits you and better chance that someone else encounters the bug and it gets fixed before you are exposed to it.

Internet Connectivity

When placing or trading online you need to rely on a stable and fast internet connectivity. In case you have a failure on the ISP side you will not be able to access the bookie or betting exchange website. In order to reduce the risk you could use a mobile phone with data in addition to your landline or any other backup solution.

Your Hardware

Typically you place your bets from a PC, laptop or smartphone. When using betting automation you might also use VPS services to run betting bots. In case of a hardware it might be handy to have a backup solution like a second device that can be used to green up trades or run your betting system.

Your Betting and Trading System (You)

In the end it is your decision to put in an order with a bookmaker or betting exchange. This means that you decide which selection to bet on, at what odds and what level of staking to be used.

You might be following strict rules when placing orders which is very helpful in terms of risk management. In this scenario you can use historical data to evaluate the performance of the betting strategy and use other tools such as Monte-Carlo method for instance to improve your money management and staking. If you do not yet have any historical data yet you should think about collecting data first, and maybe test your strategy on paper first before placing any larger orders.

Even if you have tested your betting system on historical data, there is a risk of biases that originate from a so called backtest. When moving a betting system into production, it may be wise to start off with lower stakes to verify that everything behaves as expected.

For betting and trading bots there is always the risk of software bugs which could lead to large risks and loss of money. Software development best practices such as unit testing, continuous integration should be applied to mitigate risks related to betting automation bots and scripts.

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