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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.

 

The Supply and Demand Theory in Forex

Forex Supply and Demand

Supply and demand drives the forex market

The Forex market, just like every other market in the world, is driven by supply and demand. In fact, understanding the concept of supply and demand is so important in the Forex market that we are going to take a step back into Economics 101 for a moment to make sure we’re all on the same page.

Having a good grasp on supply and demand will make all of the difference in your Forex investing career because it will give you the ability to sift through the mountain of news that is produced every day and find those messages that are most important.

Supply is the measure of how much of a particular commodity is available at any one time. As the supply of a currency increases, the currency becomes less valuable. Conversely, as the supply of a currency decreases, the currency becomes more valuable.

Think about rocks and diamonds. Rocks aren’t very valuable because they are everywhere. There is a large supply of rocks in the world. You can literally walk down the street and have your choice of hundreds and thousands of different rocks. Diamonds, on the other hand, are expensive because there aren’t that many of them in circulation. There is a small supply of diamonds in the world, and you have to pay a premium if you want one. It’s a crude analogy, but the point is made.

 

On the other side of the economic equation, we find demand. Demand is the measure of how much of a particular commodity people want at any one time. Demand for a currency has the opposite effect on the value of a currency than does supply. As the demand for a currency increases, the currency becomes more valuable. Conversely, as the demand for a currency decreases, the currency becomes less valuable.

Japan as an illustration

Take oil prices for example. When demand for oil goes up or the supply of oil drops off, oil prices go up. As oil prices go up, gasoline and natural gas prices go up. As gasoline and natural gas prices go up, you end up spending more to drive around town and to heat your home. And as you spend more and more on oil-based products, your budget gets leaner and leaner. Well, these same factors that affect your budget affect the budgets of the world’s largest corporations and governments.

One country that suffers from rising oil prices just like you do is Japan. Japan imports nearly 100 percent of its oil. It doesn’t have much of a choice. Japan isn’t known for its booming oil reserves. So any oil Japan wants to use to produce electronics, cars, and other goods, it must buy it at whatever the going rate is. But that’s just the beginning. Japan’s economy relies on its ability to export the goods it creates to other countries, like the United States. As you’ve noticed driving around town, it costs a lot of money to transport your groceries, your kids, and yourself from one place to another. It costs even more when you have to ship your goods across the Pacific Ocean. Every car, DVD player, and computer Japan produces is becoming more and more expensive to ship to consumers. So when you look at it, Japan is getting hit on both sides. It has to import all of its oil at inflated prices, and then it has to turn around and pay inflated prices to ship all of its goods.

So what impact does all of this have on Japanese goods? It makes them more expensive. If Japanese companies have to pay more to produce their products and then have to pay more to distribute their products, they are going to have to charge more for their products to cover their expenses and make a profit. As products become more and more expensive, consumers are able to buy less and less. And as consumers buy less, companies make less, which leads to all sorts of economically negative outcomes. Now, let’s take a step back now and look at what all of this has to do with the exchange rate of the Japanese yen.

Looking through the lens of supply and demand, you can see how an increase in the price of oil would affect the value of the Japanese yen. Oil is priced and sold in U.S. dollars. As oil becomes more expensive, purchasers in Japan have to convert more and more of their Japanese yen into U.S. dollars so they could pay for their oil. This would increase the supply of Japanese yen in the Forex market and subsequently lower the value of the Japanese yen. To compound the problem, as Japanese goods become more expensive and fewer and fewer people can afford to buy them, demand for Japanese yen falls. The fewer products you buy, the fewer Japanese yen you need. And when you don’t need something, you stop demanding it. Rising supply plus falling demand equal a decrease in the value of the Japanese yen.

The price of oil and its effect on the Japanese yen is just one example of how supply and demand impacts the Forex market. We will be looking at many other fundamental factors that influence the Forex market in the coming lessons. But the important thing now is that you feel comfortable with the concept of supply and demand.

Always be thinking Supply and Demand in your analysis

Every time you analyze the Forex market, all you have to do is ask yourself how supply and demand are going to be affected by what is going on. This holds true for both fundamental and technical analysis—the two major disciplines in the Forex market and every other market, for that matter.

Fundamental analysis is the study of what is happening in the world around us. Everything we have discussed so far in this book and will continue to discuss, from oil prices to stock market performance, relates to fundamental analysis.

Technical analysis is the study of what is happening on the chart of a particular currency pair. We will be discussing a few basic tenets of this investment art in a later lesson.

But both forms of analysis are built upon a foundation of supply and demand, so get ready to ask yourself supply-and-demand-related questions a lot. We’ll now look at more illustrations and examples in the video.

Forex Computers

The Forex Introduction

The Forex market is the largest financial market in the world. More than $3 trillion in foreign currencies trade back and forth every day. Forex stands for the FOReign EXchange—the financial exchange on which governments, banks, international corporations, hedge funds and individual investors exchange foreign currencies.

How does the forex work?

When you fly to another country, one of the first things you do when you get off the plane is look for a place you can exchange your U.S. dollars for whatever currency is used in the country you are visiting—such as British pounds, Japanese yen or euros.

Why do you do this? Because you know the cab driver, the hotel clerk and the souvenir salesperson are all going to want you to pay them in their national currency, not U.S. dollars.

When you slide your U.S. dollars over to the teller and she slides back a stack of multi-colored bills (let’s face it, most currencies have more color than the greenback) you have just participated in the Forex market. You exchanged one currency for another.

Now, if you stop and think about all of the people who travel, all of the businesses that operate in multiple countries and all of the governments that are exchanging money, you can start to get an idea of how big the Forex market really is.

For those of you who travel abroad frequently, you have probably also noticed that the exchange rates at the currency counter at the airport never seem to be the same. They are constantly changing. It is those changes in exchange rates that enable you to make money in the Forex market.

Basic Lesson: Know your Forex terms

Before we delve any deeper into the exciting possibilities that exist in the Forex market, we need to get you up to speed on the lingo in the Forex market. Now, don’t worry. As far as vocabulary lessons go, this one is quite a lot of fun. Honestly! It’s a very short lesson:

Pip: While some of you may recognize “Pip” as a character in Charles Dickens’ Great Expectations, we hope you will become more intimately acquainted with the pips in the Forex market—because you will be using them to determine your profits and losses. A pip (percentage in point) or point, is the smallest unit of measurement in the Forex market. Most currency pair quotes are carried out four decimal places—i.e. 1.4500. The last decimal place is called a pip. So if the exchange rate of a currency pair moved from 1.4500 to 1.4510, we would say that the price moved up 10 pips. You make money when the pips move your way in a trade.

There is an exception: Any exchange rate that contains the Japanese yen or the Thai baht as one of the currencies will only be carried out two decimal places. If you want to know why that is, you will have to take it up with the International Organization for Standardization (ISO). Honestly, there is such an organization. It is located in Geneva, Switzerland, and you would be amazed at the fields it impacts—from health care and electrical engineering to ship building and metallurgy. Anyway, they set the rules.

Currency Pair: We wouldn’t have a Forex market if we weren’t able to compare the value of one currency against the value of another currency. It is this comparison that drives prices. Forex contracts are always quoted in pairs. The euro vs. the U.S. dollar (EUR/USD) is the most heavily traded currency pair. The U.S. dollar vs. the Japanese yen (USD/JPY) is another popular pair.

The following is a list of the most common currency pairs, their trading symbols and their nicknames:

currencies

Understanding Pairs and Price Quotes

One distinction you do need to make when looking at a currency pair is which currency is the base currency and which currency is the quote currency. The base currency is the first currency listed in the pairing. For example, the base currency in the EUR/USD pair is the euro because it is listed first.

The base currency is important because it is the strength or weakness of this currency that is illustrated on the chart. For example, as the chart of the EUR/USD moves higher, it means the value of the euro is getting stonger as compared to the U.S. dollar.

image 4

As the chart of the EUR/USD moves lower, it means the value of the euro in relation to the U.S. dollar is getting weaker.

image 5

The same principle applies to the USD/JPY pair or any other currency pair. The U.S. dollar is the base currency in the USD/JPY pair. So as the chart of the USD/JPY moves higher, it means the value of the U.S. dollar in relation to the Japanese yen is getting stronger. And as the chart of the USD/JPY moves lower, it means the value of the U.S. dollar in relation to the Japanese yen is getting weaker.

image 6

The quote currency is the second currency listed in the pairing. For example, the quote currency in the GBP/USD pair is the U.S. dollar because it is listed second. The quote currency is important because it is the currency in which the exchange rate is quoted.

To illustrate, when you say the exchange rate between the British Pound and the U.S. dollar is 1.7533, you are saying it costs $1.7533 to purchase ₤1. The same principle applies to the USD/CHF pair or any other currency pair. The Swiss franc is the quote currency in the USD/CHF pair. So when you say the exchange rate between the U.S. dollar and the Swiss franc is 1.2468, you are saying it costs 1.2468 Swiss francs to purchase $1.

Currencies are sold in lots

In the stock market, when you want to buy something, you buy a share of stock, or a share of that company. In the Forex market, when you want to buy something, you buy a contract, or a lot. (We use the term contract because the Forex market utilizes currency futures contracts). There is no way to buy a share of the U.S. dollar like you would buy a share of Google in the stock market. When you trade in the Forex market, you are trading lots or contracts.

Contracts are divided into three categories: full-size contracts, mini contracts and flexible contracts.

Full-Size Contracts control 100,000 units of whatever the base currency in the currency pair is. So for instance, if you were to buy one full-size contract on the EUR/USD, you would control €100,000 because the euro is the base currency in the pair.

Mini-Contracts control 10,000 units of whatever the base currency in the currency pair is. As you can see, a mini contract is one-tenth the size of a full-size contract.

Flexible Contracts allow you to choose the exact amount of a currency you would like to control. If you want to control 84,392 units or 2,755 units of the currency you are interested in, you can with a flexible contract.

Being able to choose among full-size, mini and flexible contracts allows you to tailor your investing to best meet your investment style and strategy.

Make sure to take the time to feel comfortable with the lingo of the Forex market. If you have a solid foundation of knowledge, you’ll be much better off in your investing. So now that you’ve got the basics, let’s watch the video and take a look at what makes the Forex market tick, how it came to be, and how you can use it to protect and multiply your money.

betfairtrading

Trading Forex Basics

 

Forex trading works much like it does with stocks, you buy low and you sell high. The benefit of trading Forex is that you don’t have to choose from thousands of companies or sectors. Plus, you can make things even simpler than choosing which company to buy.

For example, most people, even those that are new to Forex, have an opinion on the US dollar and the US economy. They can easily take their opinions and translate them into a Forex trade. Buying or selling US Dollars as simple as they buying or selling a company’s stock.

Also, another advantage of the FX market is that it doesn’t begin at 9AM and end at 4PM. Trading takes place 24 hours a day, 5 days a week. For most people 24 hour trading means they can trade before or after work. Plus, you have the flexibility to make your trades online.

What_is_Forex_body_Picture_1.png, What is Forex?

Plus, you can buy and sell at any time, in up trends (also called bull markets) and in down trends (also called bear markets).