A Comparison between Financial and Gambling Markets

ArXiv ID: 2409.13528 “View on arXiv”

Authors: Unknown

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.

Keywords: Market Microstructure, Statistical Arbitrage, Trading Strategy, Peer-to-Peer Betting, Risk Management

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Philosophers
  • Why: The paper is primarily a comparative conceptual analysis focusing on market structures, products, and strategies without presenting new mathematical models or quantitative backtesting results. It identifies transferable ideas like statistical arbitrage but lacks the implementation details or empirical validation typically required for backtest-ready research.
  flowchart TD
    A["Research Goal: Compare Financial and Gambling Markets<br/>Identify cross-market applicability of trading strategies"] --> B["Methodology: Comparative Analysis<br/>5 Key Aspects: Platform, Product, Procedure, Participant, Strategy"]
    B --> C["Data Inputs: Market Microstructure & Trading Data<br/>Financial Exchanges & Peer-to-Peer Betting Exchanges Betfair"]
    C --> D["Computational Process: Statistical Arbitrage Models<br/>Identify odds discrepancies & quantitative price modeling"]
    D --> E["Outcome: Market Similarities<br/>Financial exchanges ≈ Betting platforms; Stocks/Options ≈ Sports betting"]
    D --> F["Outcome: Strategy Transferability<br/>Statistical arbitrage effectively applied to peer-to-peer betting for risk-free profits"]
    E --> G["Final Outcomes: Innovation Opportunities<br/>Optimization of trading/betting via cross-market models"]
    F --> G