Final Arbitrage Tally

The final tally for the InTrade arbitrage:

• Lost $NZD 636.77 at iPredict going long Romney. I should have lost $679.68, but backed out of some of my Romney position when things were looking clear. I'll count $679.68 as arbitrage loss; I did take on some minor risk in reversing some of my Romney position. 
• I made a series of credit card deposits to InTrade, ultimately reaching the $5000 US limit. My NZ card was charged $6209.96 for the USD$5000 deposit.
• I sent BetFair AUD$1000 to buy Romney; BNZ charged NZD$1286.51 to my card. I'll add $15 AUD to that to cover the money I there pulled from my standing account as BetFair charges 1.5% on deposits. So NZD $1305.81 lost at BetFair.
• Total costs then were NZD $8195.45
• InTrade wired me USD$7373.65 - my deposit, plus my winnings, less the $20 my account was in the red when I deposited, less a $20 bank wire fee charged by InTrade. This turned into NZD $8915.89, less a $15 wire charge from BNZ: $8900.89. 
• It took a fairly long time to get the money out of InTrade; I requested the withdrawal on the 7th of November; it arrived on the 19th of November. Fortunately, the credit card isn't due for a couple more days. 
• Somebody charged me an implicit currency exchange fee: Yahoo Finance cites rates of $0.818 for Monday, 19 November; $7373.65/$8915.89 = 0.827. This matters on these kinds of plays: had I been charged the interbank rate rather than somebody along the way taking a cent on the exchange rate, I'd have received $9014.24 instead of $8915.89. Because of the long lag between the withdrawal request and the relative volatility of the $NZD, you need some reasonable expected gains to be sure you don't lose out. Every one cent move in the $NZD costs about $100. If I'd only had expected arbitrage gains of $200, the realised amount could halve or increase by 50% ridiculously easily. 
• $8900.89 - $8195.45 = $705.44 net profit.
• UPDATE: Wow. I entirely forgot this one. I've a BNZ Platinum that gives me $1 in Airpoints Dollars for every $90 spent. So I get $91 in AirPoints dollars. 

I phoned IRD. They count this as winnings on betting and those aren't taxed. I did note that iPredict is a futures exchange for regulatory purposes in New Zealand; they didn't much care. The woman on the phone said that if I were trading on these every day so that it were more like income, then it would count. But one-offs like this are fine. I didn't ask how it would be treated if someone set up a Kiwisaver fund that accepted investments for trading on these markets.

Because it took almost two weeks to get my earnings out of InTrade, I was exposed to unhedged currency risk, making this not a pure arbitrage play.

Lesson: it's worth having standing accounts across a range of trading platforms. It takes far too long to set up an account to only do it when an opportunity comes up. Arbitrage gains are real, especially when a whale lands like the one that seemed to be trading at InTrade propping up Romney's price. But it takes a reasonably large price spread across markets. A one-cent spread covers the bank's exchange rate charge one-way; a two-cent spread covers two-way bank exchange rate charges; a three-cent spread covers the exchange charges plus half of BetFair's deposit fees; a four-cent spread leaves you a small amount of arbitrage gain but exposed to currency risk.

And be careful if you're financing this on the credit card: if the expected payout date plus a fortnight is after your credit card is due, your costs are going to be higher.