I wanted to write an article on the difference between trading on the Betfair exchange and standard online sports betting. Quite often as I speak to traders of varying experience they talk as if the Betfair exchange or whatever one they’re using is just another online bookmaker.
Whilst you can use Betfair in a traditional sportsbook type way, it is so much more than that. Before entering into certain markets we need to be aware of the natural order of the Betfair Exchange for that particular market. Which will let us know in advance what our trading opportunities are going to be, which in turn will help us set solid specific market strategies.
Thus if we can separate the natural flow of things from trader panic, we can see price movements for what they are giving us a chance to gain an edge and capitalise on those fluctuations and give us an insight as to how to bet on Betfair.
Only once we truly know a market, that is the actual game itself and how the exchange reacts to events and non events, we can more easily spot value, when odds are set too high or too low for the situation.
This simple piece of knowledge is often the only difference between the amateur sports trader as opposed to someone who makes a living from trading on Betfair.
Finding The Natural Order Of The Betfair Exchange
Every time you enter into a trade in a market on the exchanges, be it cricket, football, golf or tennis you are entering into a trade which has a natural trade state of either initially green or initially red.
When I say that I am not talking about what our cash out situation is immediately after placing the bet. That will always be slightly in the red because the lay side is always higher than the back side and Betfair's commission on your potential winnings.
I'm talking more about how all markets in all events whether it's the match outcome market in a boxing match or a make the cut market in a golf tournament, they are all either flowing to green or to red without anything other than the passing of time.
This can be said to be the first law of the Betfair Exchange:
Each market on the exchange has a natural ebb and flow to it outside of market events.
Understanding exactly what type of sports trade you’re entering into beforehand will clearly give you an advantage over other traders on the exchange who don't.
Put it this way, when Betfair launched in June of 2000 not many people understood the principles of exchange flow and so there were bigger profits to be made by traders who did understand that prices didn't always reflect what was going to happen on the field of play.
Now thanks to time and a multitude of sports trading advice, tips, software and so on, many more of the 1.1 million active customers on Betfair are much more savvy, meaning smaller margins, but more importantly, meaning that you don't want to be one of the ignorant ones.
If after half an hour you can't spot the sucker at the poker table, you are the sucker.
The Slow Green Sports Trade
A trade with the state slow green is basically a trade you've entered into which slowly edges your way. So for instance a tightly contested tennis match can be a slow green scenario.
Let’s look at this example on the Betfair tennis exchange. You can see that Nikola Milojevic is the slightly favoured player at odds of 1.95. We can also see that there is an imbalance in the market and the back and the lay for both players will probably stablise at just above evens (2).
So let’s imagine a scenario whereby the match starts and 80% of games on either serve go to deuce and each point is a hotly contested multi-shot rally.
In that situation the odds on either player would fluctuate by a very small amount and those fluctuations would be driven by the traders on the exchange, putting in orders and trying to scalp small profits as the game ebbed and flowed.
So for instance at 4-4 in the first set with no breaks of serve and 80% of games going to deuce you would expect the odds for both players to be roughly the same, with a possibility that the slight favourite had become slightly more favourite.
So the natural flow for the exchange in this scenario is a small back and forth, like low tide on a tranquil English beach. Much like the relationship between lunar gravitation and the Earth's seas dictate the lapping of the tide on the beach. It is the market forces of all the sports traders on the exchange who are keeping the price stable.
Betfair Trading Advice:
A well researched underdog can pay dividends if you are backing or laying into slow green which allows you to wait and see if you think they have a chance to win the market, if not you can back out for a small loss.
Note: This example above is a rare case where both sides can be slow green; an event with two close favourites can see a scenario whereby both odds rise very slightly by the same amount, covering the original lay position meaning that you could be on zero green right up until the market event i.e. a break of serve or winning of set.
The Slow Red Sports Trade
As I just mentioned in the note above in a tightly contested event you may get a scenario where both players odds may adjust so that both have moved slightly to green, the more likely and obvious scenario is that whilst one side is moving slowly into the green. the other will be moving slowly into the red.
As we can see here Surrey are playing Glamorgan in a county, test cricket match. Test cricket is played over a number of days and so therefore lends itself to slow red or green. In this case we are concentrating on the red side, so backing Surrey at this point would give us a slow red book if the match carries on playing out as it is.
Just to quickly explain for those of you who don't understand cricket scoring they both scored over 400 in their first innings and now Glamorgan are 276/8 meaning they have only got 2 lower order (weaker) batsmen left, so their score probably won't be higher than 300.
So we have a situation where there are probably two and a half days left to play, hence the odds won't change that much, if Surrey do actually manage to dig in and score over 300.
So now pre armed with the knowledge that you are in a slow red market you know that the 6.6 lay on the right is because of 2 reasons. The first and most important reason is because the market has a low volume/liquidity issue. The second is because someone has dangled out a back bet of 6.6 and is waiting for someone to take the lay.
So how do we take advantage of this?
Well if we wanted to back Surrey because something in our research had told us to expect an early Glamorgan collapse. We would be able to put our back order for around 3.8 or 4, this would immediately show up on the lay side, so if there is another trader out there looking to lay Surrey at a fairer price we could grab them.
This can be said to be the second law of the Betfair Exchange:
Exchange odds do not always represent what is happening on the field of play.
So here we can see somebody taking advantage of that and putting in a back order for 4.5 which you can see has gone on the lay side, which by the way was snapped up.
The trader; let's call him Trader Joe, who backed Surrey for 4.5 is on a slow red trade. Unfortunately for Joe, the low volume will mean that they won't be able to feel the benefit of that slow red.
The main advantages of a slow red trade involving test cricket is that firstly you can hang in there for a while to see how things develop and then back out for a tiny loss if things aren't looking good.
Secondly the main market events i.e. wickets falling and boundaries being hit can often reflect unrealistically in the odds.
So for instance Surrey get bowled out for around 290 say and then go on to bowl 2 Glamorgan batsmen out before they reach 20 runs, then the odds for a short (indeterminable) amount of time will drop below 4.5, allowing our trader friend to lay for a profit, even though Surrey will almost definitely go on to lose; or if the British weather has its say (again) the game will be rained off for a draw.
As I implied above you will only really get the full effect of this phenomenon if you have enough traders on the exchange constantly placing orders into the market. If they are not, then even with two early wickets there won't be anyone out there to take Joe's less than 4.5 lay order.
This leads us onto the third law of the Betfair Exchange:
The larger a crowd gets, the stupider it becomes.
Meaning it looks like Joe is the sucker in this market and whoever snapped up Joe's 4.5 lay offer know's that they have just taken money from another; to borrow a poker parlance, fish.
By the way this is what it looked like less than an hour later, Joe is probably beginning to realise that it's going to take a monumental Glamorgan collapse to get anything out of this, seeing as they have 2 days to get that total. That is not to say that Trader Joe know's something I don't as a result of his diligent research, if that's the case fair enough.
But if Joe is a wannabe scalper, then I'm afraid he has just thrown away his or of course her money, she might be a Jo.
Betfair Trading Advice:
Slow red trades that happen over the course of an event that take's a few hours or less will be more volatile than one that takes place over days, like cricket or golf. Use the shorter slow red trades as cheap ways to back an underdog for a short period of time.
The longer slow red trades can be used for scalping, sometimes quite large profits as the odds can fluctuate wildly from a few seconds to minutes, before settling down to its previous slow state. If you are not using software, get to know the market so that you can leave credible orders queued on the exchange.
The Slow Green/Fast Red Sports Trade
Now let's look at a strange Betfair exchange phenomena, the slow green/fast red trade and that is either backing the draw for slow green or laying the draw for fast red. HUH?! How's that possible? Well let me explain.
Let’s look at an international game of football between Italy and Portugal, as you can see Italy are the clear favourites at 2.34 with Portugal and the draw at 3.35. So in this scenario we have 2 slow red trades, which are backing Italy or Portugal; as the game progresses with no goals both teams' odds will slowly climb so they are slow red trades, which we're not interested in at the moment. We are specifically focussing on the draw and even though all three results are tied together , they are very different trades indeed.
As you can see from this graphic on the left, that with an original back of £100 on the draw, by the time it get's to half time with no goals, the potential profit is rounded to +47% of original liability
However from the second graphic we can see that at exactly the same time, with the same odds we are left with £21.44 red, meaning we have lost roughly 78.5% of our original liability.
Also if you look to the right of the betslip you will see that the potential profit on our original lay was only £42.56 which was the figure we used to get £100 worth of liability our limit for this demonstration. So we can see that when we are backing into the red like this we need a market event, in other words we need a goal. Keep in mind though if the goal comes after a certain time our trading opportunities are limited as we won't be able to back the draw for higher than our original odds, therefore it becomes a straight bet in which we hope there isn't an equaliser.
Betfair Trading Advice:
In slow green sports trades you need a market event to happen before a significant price change, which is fine as long as you’re aware of that before you enter into the trade. Just remember that your scalping opportunities will be minimal and you’ll be playing with fractions of a percent.
The fact that a trade is slow green only matters if you mistakenly think there might be scalping opportunities if certain things go your way. If you are entering a trade simply because you believe your selection will win regardless of how tight, then you are prepared for the long haul; or at least you should be.
Advantages of slow green trades - You can back out after the first major checkpoint; so for tennis the first set or basketball the first quarter, for little or no loss.
Disadvantages of slow green trades - Events made by the underdog can go unrewarded, so for example a rank outsider break's Novak Djokovic's serve early in a game and the market barely reacts, spoiling your pre game strategy.
Slow green can also mean there's a fast red on the other side meaning that the longer the game continues without an event the faster your red side and you can expect to lose 70-90% by the time half the game has been played.
The Fast Green Sports Trade
My favourite type of trade on the Betfair sports exchange, this is because you only have to allow time to pass to make significant profits. Just the mere fact the game is being played means you are making money.
Which of course signify's that you are trading on a non event; in other words the less goals the better, no goals = perfect.
Thus bringing us to the fourth law of the Betfair Exchange:
Red trades always require events, whereas green trades may only require time to make them profitable
Let’s look at another football match between Poland and Greece, you can see Poland are the clear favourites by quite some way, which is important and we’ll come back to that later.
In this scenario the fast green sports trade is the backing of under 2.5 goals, which means we are backing any score up to and including 2-0. So as when we were looking at the draw or no goal markets in the Italy Portugal game we have a scenario whereby something is less likely to happen as time ticks on.
The difference between the slow green trade and the fast green trade is that a single key market event, cannot completely ruin your trade. So put simply at 0-0 if you have backed the slow green draw one goal ruins your trading opportunities, especially if that goal comes in the first 20 minutes.
However with the under 2.5 goals 3 goals are needed to bust your trade hence the odds dropping quicker than the draw.
For example if you have backed the draw and it is 0-0 with 10 minutes left and a goal flies in, then your chances to trade are pretty much over and you are transformed from a sports trader to a gambler as you hope that an equaliser is scored. (You should have traded out by then, but let’s imagine that you either haven’t learned how to Trade Like A Vulcan yet or treat Betfair like you do any of the other non-cashout online bookies).
So if we enter into the under 2.5 goals market we are in a fast green market because every 5 minutes the odds will drop significantly, giving us a growing potential green book.
In the above scenario we would know that our fast green trade wouldn't be as fast as it can be. Because as I mentioned above Poland are clear favourites, therefore how fast the odds fall could be affected by goal mouth incidents.
As with the example of a slow red sports trade whereby the dog in our tennis match was struggling to keep pace with the favourite and so we had a situation where our book was slowly moving to red. So it is in the under 2.5 goal market where one team is all over the other, the evolution of the market will effect the exchange.
However this time we are unlikely to move back into red; it can happen, but it is more likely the odds decline will slow down or even freeze. This does not necessarily mean that your fast green trade has been turned into a slow one. It’s just that you are feeling the forces of your fellow traders on the exchange panicking as they try and close out their unders positions. if you have done your research properly then you will stay in there and the odds will fall again, usually even quicker after a price freeze.
As we can see from the above graphic for after 20 minutes of the game the starting odds have moved to 1.36 which isn't bad, but you have got scope in this market after 20 minutes to move from 2.12 down to 1.5 give or take a few ticks.
Betfair Trading Advice
Trades which allow you to build up a fast green book are great for scalping and also for building long term steady profits. The main advantage of a fast green trade is that you can trade for decent profits before half the event has gone and it doesn't take long before you are in a zero liability scenario effectively giving you a free bet.
The downside of FGTs is that psychologically they are harder to get away from, they feel safe because the closer the event gets to the end the more likely your original bet becomes, tempting a lot of traders to hang in too long.
Fast Green Trades are great ways to scalp both in-play and sometimes before the event has started allowing you to cold trade.
If you are using FGTs as your main source of income then make sure in each event you periodically reduce your original liability, this will ensure that you make a profit on the majority of your well researched Fast Green Trades.
Remember the first four laws of the Betfair Exchange:
- Each market on the exchange has a natural ebb and flow to it outside of market events.
- Odds do not always represent what is happening on the field of play.
- The larger the exchange grows, the stupider it gets.
- Red trades always require events, whereas green trades may only require time to make them profitable
Remember to identify what the market is going to do before you get into it, set market specific strategies based on your research and how you feel the market will react to non events and events.
Until next time
The Zen Trader