Category Archives: Exchange Betting

betfairtrading

Betfair Trading Management

Successful sports trading in Betfair or any other online betting exchange depends a lot on proper money management. It may only seem important to pick up the online betting odds movements correctly, but applying money management in trading the online betting odds will make money for serious sports traders. If we are just starting out trading the odds, managing our betting bankroll will certainly make us last a lot longer in this trading game.

To begin with we should define a starting online betting bankroll which we will use exclusively for trading and we won’t be upset if we lose it. If that happens, we will consider it as the fee we paid to learn about money management and how to trade correctly. However if we are proven to be good in trading, we would increase our capital without the risk of losing it and actually make money. Whatever the scenario, having put aside a specific figure for our available capital helps a lot in various ways and it looks a lot more professional.

Now that we have defined our trading capital, we divide it in 50 equal parts. For example, if our bankroll is €1000, we have 50 parts of €20. The reason behind this is to always risk no more than 2% of our bankroll at any time. Risking that much of our betting bankroll means that we will continue trading even after 40 losing trades. Variance can kill our trading game and we should properly think of our money management plans, so that we can continue testing our method or change it and try something else, but with a sufficient bankroll to work with. We then go on and divide our bankroll left again in 50 equal parts. For every new trading strategy we try, we always start by splitting our trading bankroll in 50 parts. The biggest the risk you want to take, the fewer those parts should be, meaning increasing the percentage of your bankroll you stand to lose in each trade or bet. For instance, you might find more appropriate to risk 5% of your available trading capital in each trade, which would lead you to divide your bankroll in 20 equal parts. However, a bad run of 20 losing trades would wipe out your whole bankroll. My opinion is to always start out with 2% of your capital and to increase your risk after 500 completed trades and a proven winning trading strategy, targeting higher returns and making money.

The next step we should be taking is defining our stop loss, the point that is we would close our trading positions. The stop loss is always defined in comparison with the amount we enter in each trade. Let’s examine an example for better understanding.

Let’s assume your trading bankroll is €1,000, you’ll be risking 2% in each trade and you’ll be trading in-play footbal matches. You have a very basic trading strategy starting by backing the favorite team and want to apply money management. In the upcoming football game between X and Y teams, X team is traded at 2.00 betting odds. You begin your trading by backing €100 at 2.00. Given the fact that you risk 2% of your €1,000, if the odds reach 2.20 you should exit the market since by laying €100 at 2.20 you’d have lost -€20.00 on X team. So, your stop loss is 2.20.

This is not however the whole story. There is a relation between the stop loss and the betting odds movement. If the X team’s odds were 1.50, your stop loss would be 1.70. But moving from 1.50 to 1.70 there are 20 steps, the so called “ticks”. Moving from 2.00 to 2.20 there are only 10 ticks (2.00-2.02-2.04-…-2.18-2.20). So, while in the 1.50 occasion you risk €20 on a 20 tick movement, in the other situation you risk the same amount on a 10 tick movement. That is why we should change our stop loss depending on the ticks’ value. Instead of 2% of our capital we will define our stop loss at a 10 tick movement. You can obviously put your stop loss wherever your strategy tells you better. After defining the number of ticks of your stop loss, you should calculate those ticks’ value to be equal to 2% of your bankroll. If for instance you have 10 ticks as a stop loss, each tick should be valued at €2.

Let’s do a small revision so that we don’t get lost in the money management maze. We have €1,000 as our trading capital, we risk €20 per trade and our stop loss is 10 ticks. Depending on the team’s odds, we now calculate the amount we should be trading according to the odds as follows:

  1. 1.01-2.00: We trade €200 so that a movement of 10 ticks to result in €20 win/loss.
  2. 2.00-3.00: We trade €100 so that a movement of 10 ticks to result in €20 win/loss.
  3. 3.00-4.00: We trade €40 so that a movement of 10 ticks to result in €20 win/loss.
  4. 4.00-6.00: We trade €20 so that a movement of 10 ticks to result in €20 win/loss.

If now we intend to green up  on all the possible outcomes of a game, we can increase the above amounts by just a little, since in the end we won’t be losing €20 but less after greening up. For example, €20 loss at 1.50 would mean that by backing €13.3 we would lose €13.3 whatever the outcome, while €20 loss at 4.00 would mean that by backing €5 we would lose €5 whatever the outcome. In other words, we should be trading with 2.66 (=4.00/1.50) times more money at 4.00 than at 1.50 so that the final loss would be equal.

Because maths can be confusing at times, we will calculate the final amounts we should be trading with, according to the mean price of the betting odds.

  1. 2.00-3.00: 2.50/1.50 = 1.66 times the amount we calculated earlier.
  2. 3.00-4.00: 3.50/1.50 = 2.33 times the amount we calculated earlier.
  3. 4.00-6.00: 5.00/1.50 = 3.33 times the amount we calculated earlier.

In conclusion we will be trading with the following amounts:

  1. 1.01-2.00: We trade €200.
  2. 2.00-3.00: We trade €166.
  3. 3.00-4.00: We trade €93.2.
  4. 4.00-6.00: We trade €66.6.

By trading the above figures and greening up in the end, we will always lose €13.3 in case of losing. We wanted €20, remember? We just have to multiply the above numbers by 1.50 (=20/13.3). So, for a trading bankroll of €1,000 and 10 ticks stop loss:

  1. 1.01-2.00: We trade €300 so that a movement of 10 ticks to result in €20 win/loss after greening up.
  2. 2.00-3.00: We trade €250 so that a movement of 10 ticks to result in €20 win/loss after greening up.
  3. 3.00-4.00: We trade €140 so that a movement of 10 ticks to result in €20 win/loss after greening up.
  4. 4.00-6.00: We trade €100 so that a movement of 10 ticks to result in €20 win/loss after greening up.

Depending on your bankroll, the % you want to risk per trade and the stop loss, you can change the figures above. If you have €500, you halve the figures. If your stop loss is 5 ticks, you double the figures. If you risk 6% of your bankroll, you triple the amounts.

 

Casino-6

4 serious mistakes in betting exchange trading

Mistake 1: Not getting out instantly

Short term traders on the betting exchanges don’t realize just how short term you have to be to avoid the losses.

To trade without knowing anything about what is going on, you have to assume that any movement against you is going to carry on going against you in the most painful way it can. And this isn’t to drastic of an assumption, as anyone that’s held onto a losing trade only to see it get worse and worse will agree.

Without any knowledge to the contrary you have to assume the worst, and the only protection against this is not to be in harm’s way: The less time you’re in a position, the less can go wrong.

Take your profits quickly and your scratch trades and losses even quicker.

By quickly I mean instantly, profit scratch or loss you should be out, or at least have your counter trade in, within 10 or 20 seconds at the most.

Mistake 2: Letting losing trades ride as bets

To be a successful trader you must be taking profits and losses of roughly the same size, but having more profits than losses, with the scratch trade taking the place of the losses.

As soon as you start to let your losses get bigger than your profits you’re creating an uphill battle for yourself because then you have to have lots more profits than losses just to break even.

The absolute worst thing you can do is hold on to a bet because you were losing on it and let it ride as the race runs. Doing this is total insanity from a risk reward ratio and is gambling at it’s worst.

If you want to gamble then gamble but at least do it properly. Don’t do a hybrid mix of trading and gambling where you’re doing each one badly.

To make small one and two tick profits and then risk your whole bank on the outcome of a horserace because you couldn’t take a small one or two tick loss is stupid. You know that in the long run it’s going to end in tears so why do it?

There’s no point in winning 9 times and losing once if your loss is 50 times the size of your profit. Anyone with such a complete lack of discipline not only will lose but deserves to lose.

Mistake 3: Over thinking the trades

Most traders over think which way the market is going to go which has 2 drawbacks: firstly, they don’t do enough trades which cuts down their potential to make money and secondly when they do eventually pull the trigger they have put so much thought and effort into their trade that they fall in love with it.

They are unwilling to get out of such a trade with an almost instant scratch trade or an almost instant small loss.

It’s as if doing that would be to embarrassing after waiting so long and putting so much time into it.

This is why people ride their losses due to their inability to accept so quickly that they were wrong.

Instead of entering into a trade with the confidence that you are right, each trade should instead be entered with the assumption that you are wrong with a willingness to react correctly if indeed you are wrong.

As much as you may have built up your reasoning for the trade you just did, you must remember that you don’t actually know anything about what is going on and it’s ok to be wrong.
Mistake 4: Wanting a profit of a predetermined size

Many people decide how much they want to make out of a trade before they enter it and then set their exit price according to that rather than what it looks like they can reasonably get now.

Wanting to make 2 ticks is great but putting your counter trade in 2 ticks higher than you just layed at and then sitting back waiting is gambling, not trading.

It might go up, but it might go down, if you can’t get out straight away with a profit you should ask for a smaller profit. If you can’t get the smaller profit straight away you should scratch, and if you miss the scratch trade you should take a loss.

If instead of all that you remain motionless with your counter trade still in at the same price waiting for your 2 tick profit then you are gambling and will have your share of profits but also your share of big losses.

betting_history

A Brief History of Betting Exchange

Peer-to-peer betting, the precursor to a betting exchange, was first released in the UK by Flutter.com in May 2000. Soon after, UK-based Betfair launched what it originally called “open-market betting”, in June 2000 – a name which was quickly changed, by the media and the associated industry, to “betting exchange”. Betfair embraced an exchange model, but it took a year before Flutter adopted a similar technology. Though Flutter managed to climb to a reported 30% market share, Flutter’s backers were content to broker a merger which left Betfair the dominant partner by a reported ratio of 84:16. Post merger, Flutter’s customers were transferred to Betfair’s system, which was later upgraded to embrace some of Flutter’s functionality. Betfair has maintained from that point a dominant marketshare and controls a reported 90% of global exchange activity today.

As with other types of exchanges, betting exchanges thrive on liquidity and customers tend to focus on the exchange where they are confident their bet can be paired up with a matching counterbet. Breaking with British tradition, Betfair uses decimal odds instead of fractional (traditional) odds because they are more popular globally.