Betfair Betting Exchange Course Lesson 7: Advantages of exchanges and sport trading

Thursday, 14 December 2017 23:52
Written by David Bet

Betting exchanges such as Betfair have revolutionised betting due to the way they operate. Exchanges offer in the majority of cases excellent prices at which to back a runner. Further more if we don't like the odds on offer, we can always ask for better odds. If we don't fancy the selection at all we can lay it.

Advantages of exchanges and sport trading

In addition to these improved odds and the ability to bet against things happening, how would you like to turn a profit on a vast majority of horse races without studying form or making a judgement? Impossible? Well not now due to the world of betting exchanges.

Initially I used betting exchanges to arbitrage between bookmakers and other customers of the exchange guaranteeing money.

Traders

As the volume of matched bets on the exchanges grew a new sort of pattern of activity developed. Rather than attempting to make a judgement on the underlying race or taking on risk as a bookmaker, shrewd punters started to trade the movements in the odds, enabling them to make a profit regardless of the result.

Traders, as they are called, look at the odds and make a judgement on the direction of the movement of the odds and make money by correctly predicting this movement. The underlying event, the race, the runners, the course, the going, the form are all generally irrelevant.

Traders on sports markets operate in a similar way to city professionals working on conventional financial risk markets. On the stock and futures market there are huge amounts of people trading the movement in prices of publicly-traded companies, foreign exchange and commodities amongst other things.

Nobody tries to work out if for example Vodafone PLC is undervalued or overvalued; or whether the world demand is increasing for oil or not. They are just interested in the short-term price movement.

If the price is going to go up then they buy it, if it is going to fall they sell it. They make money by placing buy and sell orders into the market to take advantage of these price movements. Traders on betting exchanges do exactly the same thing.

Traders on Sports Markets

Traders now account for a large number of bets and volume of trade on Betfair sports betting markets. For the average punter this means a full range of odds are available to both back and lay and in sufficient volumes for the biggest gamblers.

Traders also tend to push the over-round close to zero meaning that the book is close on perfect with little margin given away to the bookmaker.

Traders on exchanges make money by correctly predicting which way the odds on a horse are going to move. Everybody who keeps an eye on the betting market will know how often you see the price of a horse starting to drift or come in and how this pattern often persists till the off. It is due to these movements that traders make money.

If a trader felt a selection's price was too short in the market and thus was going to drift (get larger) they would lay at the low price and as it drifts to a higher price, back it. After these two successful bets a trader has a risk-free bet on that particular runner if it goes on to win and loses nothing if it doesn't.

This is because the trader has backed and laid at differing odds (back HIGH, lay LOW), netting the difference between the two bets. In addition to having a free bet on one runner it is possible to transfer some of the profit to other runners in the race. The result is you win regardless of the winner of the race!

Most traders never actually watch the race themselves; they finish the race before the off and move seamlessly to the next race. This is because the result is not important to them. They have made their money and move on.

Top Traders

Top traders using advanced strategies can achieve a situation where they will win around 90% of the time on each and every race.

Traders often trade more than one horse in a race thus increasing profits. When you consider there are races every 10-15 minutes or so every afternoon throughout the year you can instantly see the potential and why trading is huge business on betting exchanges. Racing is ideal for trading because with so many runners, the odds will continually move in the build-up to the race. These odds moves can be substantial or tiny, but with the popularity of UK racing ensuring the markets remain efficient with the 'Back' market at close to 100%, one thing you can be certain of is that the market will not remain static on Betfair. On-course bookmaker markets may not move at all, but with so many more increments available to trade on Betfair, this ensures even the least interesting horse race can be profitable to Betfair traders.

Of course you can trade any sports event, not just horse racing, but anything you wish. The only prerequisite is that you know and understand how and why the odds move. To fail to do so would mean facing a loss-making situation for sure. Each event, and the time at which you get involved and why, radically changes the way you approach each market.

Trading Programmes and the API

Rather than just using the traditional Betfair website to bet on a race, which is designed to be all things to all customers, a lot of people are using specially designed software to place bets and monitor positions of markets on the betting exchange.

Using this sort of software allows exchange users to monitor the market closely and see exactly where money is coming for a horse and quickly take advantage of that fact. The software will also actively monitor and manage your open bets for you making the chances of a successful series of bets much more likely. Some software vendors offer very comprehensive software but also offer scaled-down versions so you can get your feet wet or at worst at least see and understand the concept.

Trading just the movement in odds on a race may seem strange to those who have done much to understand the form and structure of a race. However it is this sort of opportunity that presents many people the chance to finally develop an edge in the market and a level of consistent winnings that has evaded traditional punters for some time.

Although growing steadily, in comparison to the volume traded by city hedge funds for example, this type of activity is still virgin territory as many have yet to understand its full potential. Certainly if you understand the structure of a race as a traditional punter and you learn how to trade the results could be very good indeed.

Just looking at price graphs on an exchange can confirm if the odds are coming in or going out.

Trading on a race

Time for an example. In this particular race I have placed a series of bets on Hidden Jewel. I correctly forecast that the price would come in. I have no interest in the horse, its form, the course or state of the going. All I have monitored here is the way which the money has arrived in the betting market and how it has flowed from one side of the book to the other, moving the price on Hidden Jewel.

By backing and laying several times as the price moved, I now have a profit on this horse of £24.55.

My potential loss is zero, I cannot lose on this race, it's a punter's nirvana; all I have is 100% upside. The £24.55 is now spare for me to do with as I wish. As things stand, I will win £24.55 if Hidden Jewel wins and if it does not win I will lose nothing.

If I wanted I could now oppose Hidden Jewel with no liability. This is because I already have 'free' money at my disposal on this horse and this would enable me to have a 'green' P&L, i.e. no losses meaning that whoever wins the race guarantees a profit. The image below shows what will happen if I lay Hidden Jewel at the price of 2 to balance up my book.

Summary

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