A Comparison between Financial and Gambling Markets

TL;DR

This paper compares financial and gambling markets, highlighting similarities and exploring how financial strategies can be adapted for gambling, especially in peer-to-peer betting exchanges.

Contribution

It provides a comprehensive analysis of both markets, identifying shared features and demonstrating the application of financial models like statistical arbitrage to gambling.

Findings

Financial markets resemble online betting platforms.

Stocks and options share traits with sports betting.

Statistical arbitrage is effective in peer-to-peer betting exchanges.

Abstract

Financial and gambling markets are ostensibly similar and hence strategies from one could potentially be applied to the other. Financial markets have been extensively studied, resulting in numerous theorems and models, while gambling markets have received comparatively less attention and remain relatively undocumented. This study conducts a comprehensive comparison of both markets, focusing on trading rather than regulation. Five key aspects are examined: platform, product, procedure, participant and strategy. The findings reveal numerous similarities between these two markets. Financial exchanges resemble online betting platforms, such as Betfair, and some financial products, including stocks and options, share speculative traits with sports betting. We examine whether well-established models and strategies from financial markets could be applied to the gambling industry, which lacks comparable frameworks. For example, statistical arbitrage from financial markets has been effectively applied to gambling markets, particularly in peer-to-peer betting exchanges, where bettors exploit odds discrepancies for risk-free profits using quantitative models. Therefore, exploring the strategies and approaches used in both markets could lead to new opportunities for innovation and optimization in trading and betting activities.