Why arbitrage is smaller than it sounds

Backing every outcome at prices that sum to under 100 per cent of implied probability guarantees a profit whichever wins. The edge is real, and it is typically a fraction of one per cent to two per cent.

It exists because books disagree and disagreement is fleeting. Two operators pricing the same event from different models will occasionally cross, and the crossing closes within minutes because both are watching the same market.

The arithmetic is the easy part. The difficulty is entirely operational: funds spread across accounts, withdrawals, verification, and the fact that an account which only ever takes the best price is an account that gets limited.

What follows from that is less comfortable. It is frequently sold as risk-free income. It is risk-free per bet and not risk-free as an activity — a voided leg, a palpable-error cancellation or a limited account each turn a guaranteed profit into an open position.

What to do with it. Treat it as a business with working capital rather than a strategy, and size it against the account risk rather than against the margin.