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What is arbitrage?

Arbitrage explained in plain English: a direct definition, a worked example, the formula and related terms, with sources.

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Last updated: · Written and reviewed by Ken Lin

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Quick answer

Arbitrage: Arbitrage is a price gap across venues where the best available odds for every outcome imply a combined probability below 100%, so covering all outcomes locks in the same return whatever happens (at the quoted prices).

Also called: arbing, sure bet

Explained, with an example

For a two-way market, an arb exists when 1/odds A + 1/odds B < 1 [1]. Odds-API.io computes profitMargin = (1 − Σ 1/odds) / Σ 1/odds × 100 and returns a stake split per leg, using prices net of exchange fees where relevant [2]. Example: 2.10 and 2.10 → 95.24% implied → about 5% margin. Arbs are small and short-lived, and bookmakers may limit accounts that take them [1]. The CFTC uses the term for buying and selling equivalent instruments across markets to profit from a price discrepancy [3].

Formula

arb exists if Σ 1 / best oddsᵢ < 1
profit margin = (1 − Σ 1/oddsᵢ) / Σ 1/oddsᵢ
stakeᵢ = total stake × (1/oddsᵢ) / Σ 1/oddsⱼ

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Frequently asked questions

What is arbitrage?

Arbitrage is a price gap across venues where the best available odds for every outcome imply a combined probability below 100%, so covering all outcomes locks in the same return whatever happens (at the quoted prices).

About this guide

Pred-Data publishes independent, source-linked explainers about prediction markets and the AI tools used around them. Every factual claim on this page links to a primary or reputable secondary source, checked on the date shown above. We do not run a trading venue, take bets, or give personal advice.

Author: Ken Lin · Corrections: if you spot an error, we review it and date-stamp the fix.

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Sources

  1. What Is Arbitrage Betting? Definition & Example — Odds-API.io glossary, accessed 2 Nov 2026
  2. Arbitrage Bets guide (formula, response format, limitations) — Odds-API.io docs, accessed 2 Nov 2026
  3. CFTC Glossary (binary option, DCM, order book, liquid market, market maker, settlement, wash trading, arbitrage, hedging) — U.S. CFTC, accessed 2 Nov 2026