Look One Step Ahead for a Live Trade

The benefits of an exchange are best displayed in a live sporting event. The chances of a team ebb and flow during play enabling traders to constantly revise and improve their position.

Let's look at the example of the final test between India and Australia recently.

• Needing just 107 in the fourth innings to win the match, Australia traded at 1.05 when the target was set, India are matched at 20. Being only day three, the draw is out of the equation.
• Australia lost a wicket immediately (0-1) and drifted to 1.10.
• Wickets continue to tumble, and at 58-6, India become favourites at 1.86.
• Another wicket, 62-7, and India are now strong favs at 1.22 - their lowest price in the match.
• Mini-revival, Australia reach 77-7 and regain favouritism at 1.89.
• A wicket reverses the betting dramatically, India now 1.30 at 77-8.
• The tail wags, at 90-8, both teams are trading at evens (2.0).
• The ninth wicket fails, India back into 1.50.
• Australia all out for 93, the final price available for India was 1.30.

Now preaching after the event is not something to be proud of, but imagine the position you could have put yourself in if you believed Australia's record in dead rubber tests and chasing small totals was worth a risk. Laying Australia at 1.05 wouldn't exactly kill you. For the potential profit of £100, you risk a whole £5 - the price of a couple of pints! Think about it - what is the downside of such a lay? Langer & Hayden defy the trend of the match and get to 50/0, Australia trades at 1.02 and you can't get out of it.

At virtually any point in the innings after the first over, you had a healthy position to trade from. Would you then back Australia at 1.5 or 2.0 or higher? Plenty of options and no need to jump in all at once. Sell the bet back piece by piece - first covering the potential loss so you then have a 'bet to nothing', then chip away to even up your result on both sides, or however you want to cheer the result - you are in control of your position. That's the beauty of an exchange.

If only it was so easy - not every game will go exactly as you plan. Watch a few games and make some notes, rather than investing cash. If you have any statistics to help you out (number of draws on a certain cricket pitch, most popular time for goals to be scored in soccer etc), all the better.

Go into the match with a strategy. Do you think one team will win? How confident are you? Do you wish to ride them all the way, hedge for an even profit all-round, or somewhere in-between? Are you prepared to risk a little bit for a chance of a big payoff?

One popular system is backing the draw first in football matches that you expect to be rather dull and lifeless, particularly in the first half. The average draw price of a relatively even English Premiership match is 3.4. If the game is still scoreless at half-time, that price will drop to 2.6-2.7. But beware the late goal, stats show that the last 15 minutes of each half are the highest scoring segments of the match, even after you allow for the addition of injury-time.

Scratch it out first on a piece of paper:

• Back the draw at 3.4, for £50
  • Team A = -£50
  • Draw = +£120
  • Team B = -£50
  
  
• After 35 minutes, lay the draw at 2.80 for £30
  • Team A = -£20
  • Draw = +£66
  • Team B = -£20
  
  (note - effective position is now £20 on the Draw at 4.3)
  
  
• At half-time, if the score is still 0-0, lay the draw again, 2.66 for £30
  • Team A = +£10
  • Draw = +£16.2
  • Team B = +£10
  
  
• Team A scores after 60 mins, prices now Team A 1.50, Draw 3.6, Team B 17.0. Lay Team A for £20
  • Team A = £0
  • Draw = +£36.2
  • Team B = +£30

In this position, you don't mind if the home team hangs on, but you'd prefer an equaliser from the visitors. Team A continue to shorten as the clock ticks, but Team B are pushing everyone forward...

75mins – Team A 1.28, Draw 5.0, Team B 30.0

Do you ride this out or lay the favourite again?

80mins, the visitors get desperate and bring on fresh legs. Team A1.20, Draw 6.0, Team B 50.0

Risk a tenner by laying the leading team for a backers stake of £50.

• Team A = -£10
• Draw = +£86.2
• Team B = +£80

85mins, the visitors equalise! Team A 11.0, Draw 1.20, Team B 11.0. Lay the draw for £100.

• Team A = +£90
• Draw = +£66.2
• Team B = +£180

90 minutes - somebody scores, but do you really care with a book like that???

Alternatively, you might wish to lay the odds-on favourite if you don't think they will score in the first half-hour. There are many different strategies, many different variables, the only way to work out what's best for you is test them out.

Important tips for live trading

1. Go into the game with a strategy.
2. Keep thinking a few minutes ahead - what will happen if ....? With live trading, you are focusing on what happens next, not necessarily the end result.
3. Always be prepared to risk a short-priced favourite for the sake of a couple of beers.
4. Practice on paper or for small stakes first.

#1 - How to trade a low volume market

With the tennis circuit taking prominence over the summer, it's a perfect time to learn how to trade a low volume market.

Being a head-to-head market, bookmakers' margins on tennis are relatively tight (average of 108%), but that doesn't mean you can't find value on an exchange - it comes down to judgment and timing.

Let's look at judgment. How exactly are you making your selections? Do you do plenty of research before working out a set of prices (or percentages) in your head, or do you use someone else's prices as a guide? There is no single way to profiting on an exchange - there are many different ways to trade. Some people like the constant action, others like to pick and choose where they play. Either way, you need to have confidence in the prices you are using as a basis for your trading.

Let's use a hypothetical match between Andy Roddick and Tim Henman on a hardcourt surface. You look at their respective lead-up form, noting what sort of players they have lost to or struggled against. Is each player in top form? Is this their favourite surface? Do they have a good record at this event previously? Are they fully fit? What is their head-to-head record?

Do not look at any other prices until you have formed your market.

After going over all the statistics, you come up with a market of Roddick 1.67, Henman 2.50 at 100%. Now you can look around at the bookmakers' opinions - you note that in the Caribbean where the US-focused bookmakers are, Roddick is marked shorter, whereas in England, Henman is shorter - bookies catering for the parochialism of their client base. Overall though, your market is pretty close, the average is 1.57 (4/7) for Roddick, 2.30 (13/10) for Henman, and this is reflected in the opening market on the exchange.

Now comes the fun part. Everyone can read the 'back' prices on an exchange and compare them to their bookie, but can they look at the 'lay' side as well? Say that you wish to bet on Roddick at any price better than your assessment. You have two options - ask for a price on Roddick well above the market (which will probably stay unmatched), or you can offer to lay Henman at what looks to be a good price, but in effect is only offering you the price you want on Roddick.

How does that work? In a two-horse race, backing one runner effectively offers your layer (or bookie) the reverse price on the other runner. Think of it in fractions. If you have a standard bet with a mate on a football match, you usually will bet at even money or 1/1 - £5 of yours against £5 of his. But we all know not all contests are even. If you want to bet your selection at 4/5 (1.80), then the person laying the bet is receiving odds of 5/4 (2.25) on your selection NOT winning. This could either be 5/4 on the other player in a tennis match, the whole field in a horse race, or the other team and the draw in a soccer match.

Back to Roddick v Henman. You want to back Roddick at 1.70, but the best price on offer is 1.62. Henman's price is currently 2.34. Try offering 2.40 for the Englishman - if matched, this would deliver you a price of 1.714 on Roddick. If this isn’t clear, think in fractions and reciprocal values – lay Henman at 7/5 = back Roddick at 5/7. Remember that early on, liquidity in these markets can be quite weak, however by laying in a 108% market, rather than 100.2% at the close, you can snap up some extra value. If you are confident in your ratings, you can go up before any other prices are available and post a wider margin, and see if you can pick up some easy money from punters too impatient to wait for the market to form.

If the largest bet size on the screen is only £50, putting up an offer of £500 will most likely scare punters away. Be prepared to take small bites to achieve your overall goal. Timing and patience are crucial. You will have to factor commission rates into your projected profits, plus the potential need to vary your prices to get all of your bets matched.

Make use of the settings option – above every Betfair market is a link called ‘options’. Click on this, and then...

1. Include settled bets in P&L figures – important for long-term markets, eg tennis tournament or Champions League winner where selections are eliminated along the way.
2. Show P&L figures net of commission.
3. Show a separate position (prefixed >>) (As if unplaced bets were matched).

The last option will save you time and money when trading – it does all the calculations for you when trying to hedge and trade.

If you manage to lay Henman at 2.40, giving you a price of 1.714 for Roddick, you can then improve your price by laying some back. Laying £100 at 2.40 gives you a risk of £140, a profit of £100. If you laid Roddick for £50 at 1.64, your position would then become Roddick wins +£68, Henman loses £90 - a net price of 1.755 for Roddick, and a price almost impossible to find anywhere else!

Trading on an exchange gives you more options. You can trade in and out of positions, put up offers on both sides according to your ratings, or just follow the money trail and go with the flow.

#2 - Why laying a selection is often a better choice than backing it.

Ever looked at a bookmaker and thought that looked like an easy way to riches? Well, it's not quite that easy, but it certainly does have its advantages.

A licensed bookie has to offer a price on every betting option - every horse in a race, every player in a tournament and nearly every match on the football/tennis schedule. They can't hide the selection they like, or the match they don't want to get involved in.

As a layer on an exchange, you have the choice to bet when and where you want to. You can lay one horse in a race or all of them. You can price all 64 matches in the opening round of a Grand Slam or just the one you like the most - it's your decision.

Bookmakers can suffer if they try to spread themselves too thin – i.e. by offering too many matches or events and not being able to do proper research so they are highly confident of their prices.

When bookies do get it right though, the punter by placing a bet offers the bookie a great price on the alternative option. Let's use the example of the men's match, Karol Kucera v James Blake, in the 2004 Hopman Cup final. Using a sample of 12 betting firms listed on TipEx, the top price available on Kucera to win at 3.46. The Betfair price never even got above 3.10. However Blake traded as low as 1.31 up to a high of 1.41, closing at 1.40. By laying Blake early at 1.33 (1/3), the price you are effectively backing Kucera at is 4.0 (3/1). Even if you were slow off the mark, you could have laid 1.36 (4/11) or even 1.40 (2/5), and still returned a better price than any bookmaker on the sample (before taking commission into account).

As mentioned below, you could even improve your price by laying short then backing at a higher price.

The beauty of laying favourites comes down to the lower level of risk involved. Favourites are traditionally backed strongly - hence the name. Any time there are reasons why the favourite is a risk - poor form, coming into an event fresh from a break, injury concerns etc - then it may be worth opposing them. Laying a 1.20 shot for £100 has a big upside (£100) and a relatively small downside (£20). Only one in six selections at that price has to get beaten for you to break even. Any more than that, and you are in profit.

Often there are factors which force the price of the favourite down to well below its true price. Media attention and popularity are the main ones here. Some players or teams are good enough to win anyway despite the weight of attention - eg Manchester United, the most popular football team in the world, are always shorter than they should be. Others, on occasion, struggle under the weight of the support like Tim Henman. In England, Henman comes up shorter than he deserves for every match of every tournament. In futures betting, his price is never anywhere near the all-up match-by-match price of his path required for victory.

Lleyton Hewitt in 2003 was an interesting player to price up. It was clear by June that something was wrong with him - two changes in coach within six months, the lawsuit with the ATP, and poor form. Bookmakers and punters were divided as to whether his 2003 season would see a return to his best or slide further into a slump.

Using Centrebet prices for every ATP match Hewitt played in the four months between Hamburg and the US Open, laying 'Rusty' for a stake (not risk) of £100 at the final price in every match (23 in total), you would have recorded a profit of £318. In only three matches was his price any higher than 1.35 - low risk, high reward. Betfair prices recorded on odds comparison sites for these matches are affected by live trading on several of these matches, and thus cannot be used. It can be safely assumed that the prices traded on the favourite spanned both sides of the bookmaker price and closed slightly higher on nearly all occasions.

If you look at the trading history of a market on an exchange, particularly one with a clear favourite, you will always find that the 'jolly' accounts for the vast majority of the bets matched. So if you are keen to cheer on the outsider, try the laying the favourite instead for better value.

#3 - Make profits from someone else's research

There are thousands of licensed bookmakers around the world - how many of them do you honestly think do all the hard work themselves? Realistically, very few. Most bookies will have their own area of expertise, but there simply aren't enough hours in the day for them to price up every market for every match in every league around the world by themselves.

Do some homework - work out who is good at certain events, particularly the less popular leagues. You could spend months working out who the best judge is on the English Premiership, but the matches are so popular and the exchange markets so tight, that it is very hard to make an earn as a 'trader'. The smaller the market, the more time you have to prepare.

Let's take a look at something more obscure as an example - the Conference. You've spent a few weeks following which bookmakers take an opinion on a match (by offering best price rather than being 'vanilla' or the same as everyone else), and now you are prepared to follow them by offering the same figures or slightly better than their prices on Betfair. The best part? You can set your risk amount to as much or as little as you like.

XYZBookie.com have had great opinions in recent weeks, so you want to lay any team they have best odds for. So from their market of Aldershot v Halifax, you see that they are best price around on the home side at 1.80, with conservative prices of 3.30 the draw, 3.80 for Halifax - a market of 112%. Unless you are first to price the market up on the exchange, you will have to improve on those prices to jump to the front of the queue and get matched.

Click on 'Lay All', then offer a slightly better price on all options - say 1.82, 3.40, 4.10 - a market of 108.7%. You are now top price on the favourite, but still in the mix on the others, and with some margin (the 8.7%) up your sleeve to manoeuvre later. Click on 'Liability' to set how much you are prepared to lose on each selection. If you are keen to lay the home side as per the 'expert opinion' of XYZBookie, then offer to lay Aldershot to lose £100, with just £50 of risk on the other pair. With your conservative prices on the draw & away options, you might not get matched anyway.

Note that when you are entering an amount as the 'lay' figure, this is the stake that the backer can take on the other side, NOT the risk- so to risk £100 on Aldershot at 1.82, you will need to offer £121.95 on your lay.

In smaller markets, don't expect these funds to be matched instantly. You may need to wait several hours or even a couple of days. Check back on the market every few hours to see your position. If you are still head of the market, then be patient. But if someone has jumped ahead of you, you will have to tweak your odds a little, remembering to keep the percentages in your favour. This might sound like a lot of hassle, but it can reward you greatly if you take the time to mould the market your way.

And remember this - if you get to the market first, you can post offers as short as you like. The majority of exchange punters are market TAKERS rather than market MAKERS - they either don't understand the concept of value or aren't prepared to risk it. Lay low, back high and you'll be well on the road to success on the exchanges!