So far we have looked at carrying out ‘bet and forget’ transactions. In these cases we place a bet and then wait for the result to come in before we know whether we have won or lost (although we often know beforehand if our prediction in a football game is 3-0 down with minutes to go!). Similarly, we know that we will either make a profit, or lose our entire stake.
Trading on exchanges is a different beast, designed to take advantage of the way that the odds for any particular event change over time. Most often these are changes that take place whilst the event is ‘in play’, although it is possible to trade over a longer period, e.g. backing or laying a team to win the Premier League or Superbowl, and hopefully taking advantage of their early results.
The basic principle behind trading is ‘back big, lay low’. That is, place a back bet and then, when the odds have decreased, place a matching lay bet. The difference in the odds will represent the profit if the chosen selection wins, whilst there is no loss if they don’t win. It is best described with an example for which I have used a tennis match for the sake of simplicity – there are only two outcomes in the match odds market! The screenshots come from some trading software called Bet Angel (other applications are available); the use of trading software is highly recommended for those dipping their toes into trading.
The match is in play, and I have chosen to back Robredo for £50 at around 1.28. Do not worry about the stakes; more on that later.
The bet was actually placed at 1.28, but the odds ‘in play’ move so quickly that they have already gone out to 1.33. The screenshot shows that I am looking at a profit of £14.00 if Robredo wins, and a loss of £50 if Dancevic wins.
As the game goes on, Robredo completes a break of serve. If trading tennis, this is a major point in the match! Consquently the odds on Robredo come in to around 1.20. Time to close the trade.
I laid Robredo for £50 at 1.20. That would result in a liability of £10 (£50*0.20 = £10, remember that the odds on the exchange include the stake so they are calculated (at least by me) by subtracting 1).
The sum of this is that if Robredo wins I get £14 from the back, but lose £10 from the lay, leaving £4 profit. If Robredo loses I lose the £50 back bet, but get the £50 somebody placed when taking my lay bet meaning a net position of £0.00.
Therefore my best case situation is +£4.00, and my worst case is break even, and I can leave it at that if I wish. However, trading also offers the opportunity to ‘green’ up. This spreads the potential winnings on any particular outcome across all options to guarantee a profit. You can, if you wish, calculate the stakes and odds for this manually – but that is beyond my ken! This is where the trading software comes into play. You can see below that I ticked the ‘Green’ box in Bet Angel, and then by clicking the figure within the ‘Trade profit’ section I can instruct Bet Angel to make the calculations and place the bets.
And there it is. The figures now show that I will make £3.42 if Robredo wins, and £3.39 if Dancevic wins. If you look at the time, you can see that I made that guaranteed profit in less than 5 minutes. I could then repeat the process or move onto another match.
Here’s the rub. Stakes on a ‘place and forget’ approach are completely at risk, and so kept low. Somebody used to better a few pounds, or maybe a fiver once in a while, would balk at the idea of betting with £50. BUT – the key here is that in trading we should never let our position get to a point where the entire stake is at risk. If, when I placed my £50 at 1.28 the odds had moved against me to, say, 1.50, I would have been looking at a potential maximum loss of £11, although I could have ‘greened’ that (properly ‘redding’ I suppose) to reduce the loss further.
You can start with much lower stakes of £2, and it would certainly be an idea when starting, but remember that the potential winnings will also be lower as well as the liability.
Trading can let you take advantage of the way that odds move in any event, and as long as the event is being actively traded there are plenty of opportunities to ‘back big and lay low’ (or the other way around). Tennis is a classic example, but the correct score in football is another – the odds on 0-0 will generally start to come in as the game is underway, but remember that if there is a goal scored before a trade is closed you can lose all your money!
But this isn’t free money, else everyone would do it. You still need to know why you are opening a trade, why you should close it, when to take the money and when to take your losses!