(Initially published on Publish0x.com)
Friendly arbitrage is a set of two deals among three friends on an outcome of an event, that guaranties a person, who made the two deals, a profit regardless of an outcome of the event.
In this post we consider two examples of such arbitrage.
Example 1. Friendly arbitrage on the bitcoin price movements
Suppose, that one of your friends believes that the price of bitcoin will go up on 10% or more on the next week. Let’s call this friend the optimist. The second friend believes that the price of bitcoin will go down on 4% or more on the next week. Let’s call this friend the pessimist. We have a situation in which two parties have different and opposite opinions about a direction of the bitcoin price movement. In such situation, you can offer each party a good deal (based on the party’s opinion), which guaranties to you some profit regardless of an outcome.
Firstly, we go to the URL: https://ispreport.xyz/farb/farb.html and enter our data into the fields on this page. We enter 10 into the field with the caption “Optimist” and 4 into the field with the caption “Pessimist”. Let us assume that an amount for each deal is $100. (If not, then we should change this value in the field with caption “Amount”.)
Fig. 1
Secondly, we click on the button “Show the deals!”. On the result page will be shown your two deals and your profit for each possible outcome.
Fig. 2
Before we consider the proposed deals, let us consider the classical deal. In the classical deal the optimist wins $100 from you if she/he is right (bitcoin is up 10% or more) and pays $100 to you if she/he is wrong (bitcoin does not reach 10% increase in price).
Now, let us consider the new deal with the optimist in more details.
In the proposed deal you give to the optimist $50 in the case B, if bitcoin goes up 5% or more but less than 10%. In the classical deal the optimist will pay to you $100, therefore the total value of your gift to the optimist in this case is $150.
In the case C, if bitcoin goes down or goes up below 5%, the optimist pays to you $100 as in the classical deal.
In the case A, if bitcoin goes up 10% or more you pay to the optimist $99. It is $1 less than $100 in the classical deal, because you need a small compensation for the $150 gift you give to the optimist in the case B. Even a greedy person would consider a payment of $1 for a gift valued at $150 as a nice deal. Therefore, your friends will accept these deals if they have strong opinions on the bitcoin price movement.
The same arguments are applicable to the deal with the pessimist.
Now let us see what happen in each case at the end.
Table 1
As we can see from Table 1, in all cases you have some profit. The maximal profit is in the case when both parties are wrong in their forecasts. It should be noted that you have a risk-free profit after execution of the two deals with your friends. Only in a case when one party breaks the deal you may have a loss. For the reason that you make these deals with your friends or/and relatives, a probability of such event (a broken deal) is close to zero. Take into account the fact that you have positive profits on zero investments in all cases.
Example 2. Friendly arbitrage on an outcome of a basketball game
Suppose next Sunday will be a game: Boston Celtics vs Atlanta Hawks. One of your friends is a fun of Boston Celtics, who believes that Boston Celtics scores 10 points or more than Atlanta Hawks. Let us call this friend the optimist. The second your friend is a fun of Atlanta Hawks, who believes that Atlanta Hawks scores 4 points or more than Boston Celtics. Let us call this friend the pessimist. This situation is similar to the situation in example 1, where instead of percents in the bitcoin price there are points in the final score of the game. Therefore, if you offer similar deals to you friends you will be able to receive a risk free profit from this friendly arbitrage, as shown in Table 1.
P.S. 1. The service on https://ispreport.xyz/farb/farb.html is not free. You need to buy a license to use this service.
