What is Trading?
Trading is backing and laying the same horse or team with the idea of securing a risk-free profit regardless of whether that horse or team goes on to win or not.
By backing and laying at different prices the trader can lock in a profit which can be realized before the race or game has even started or no matter who goes on to win.
This means that you are no longer limited to picking the winner like you were in the dark old days of gambling at the bookies. Betting exchange trading has completely changed how people bet and more and more people are realizing that it is now possible to make consistent profits from trading the numbers, even if you don’t know anything about the underlying instrument on which you are trading.
Of course, trading on Betfair is not only limited to horse racing or trading before the event starts. Skilful race readers and sports fans can make good profits from trading on the race or game while it is In Play as Betfair markets stay open until the first horse crosses the line or the final whistle is blown.
For instance, a trader might Back a soccer team that is playing well and then Lay the same team just after they score a goal at a much lower price to guarantee a profit on the game regardless of whether that team goes on to win the game or not. Or you might Lay a tennis player that looks weak and then Back him after his serve is broken at a much higher price to guarantee a profit on the game no matter which player ends up winning.
What is Betfair?
Betfair is the world’s largest betting exchange where hundreds of thousands of people place bets directly with each other.
Betting with other people through Betfair removes the need for a bookmaker or “house”, allowing exchange users to bet directly with other exchange users at a price and amount that they both agree upon.
All Betfair does is hold the money for every bet and then pays out the winner with the loser’s money, taking a small percentage (2%-5%) from the winning side.
Betfair has no control over the prices and will not close or restrict winning accounts as bookmakers do, because their profits aren’t affected by winning accounts in the same way a bookmaker’s profits are.
Betting against other people on Betfair, instead of betting against a professional bookmaker, means that the bookmaker’s profit margin is removed from the prices. And the competition between several layers and backers removes any single person’s control over the price, making Betfair prices an accurate reflection of true market value.
Laying on Betfair
Laying a bet on Betfair means taking a bet on a horse or team which you will pay out on if that horse wins the race. If the horse loses the race then you keep the stake.
For instance, if you Lay £10 @ 4.0 on the Favourite horse in the race, that means you have taken a £10 bet from someone who wants the Favourite to win, and you have both agreed on a price of 4.0:
If that Horse wins:
Lay bet loses so you payout £10 x 4.0 = £40 ((£10 x 3) + £10 backers stake)
If that Horse loses:
Lay bet wins so you keep the £10 stake as your profit.
Backing on Betfair
Backing a horse or team on Betfair means placing a bet which will payout to you if the horse or team wins the race or match. If the horse loses then you lose your stake.
For instance, if you Back £10 @ 3.50 on the Favourite horse in the race, that means you want the Favourite to win:
If that Horse wins:
Back bet wins so you will be paid £10 x 3.50 = £35 (including your original stake)
If that Horse loses:
Back bet loses so you will lose your £10 stake.
Every bet that is matched on Betfair has at least 2 counterparties: the Layer and the Backer. A bet is matched when both the Layer and Backer agree on a price.
Trading on Betfair
Being able to Lay and Back on Betfair gave rise to a new aspect of gambling that never existed before: the ability to bet on the direction of a horse or team’s price, instead of betting on the actual result of the race or match.
For instance, I want to bet that the price of the Favourite horse will go up. I Lay £100 @ 4.1 on the Favourite and then try to Back £100 @ 4.6 on the same horse. The price goes up and my Back gets matched @ 4.6.
In the above scenario, I have Layed and Backed the same amount of money on the same horse, but at slightly different prices, giving me a profit if the horse wins but no loss if the horse loses:
If Horse wins:
Back bet wins £100 x 4.6 = £460
Lay bet loses £100 x 4.1 = £410
Result = £460 – £410 = +£50 profit
If Horse loses:
Back bet loses £100
Lay bet wins £100
Result = £100 – £100 = 0
Prices on horses, especially in the last minutes before the start of the race, become very volatile, offering many opportunities to profit from price movements before the race starts.
In-Play Trading on Betfair
In-Play Trading on Betfair is different from trading because it refers to trading the price of a horse or team while the race or match is actually running or playing.
When a race starts, Betfair suspends the market, cancels all unmatched bets and reclassifies the race market as In-Play. Users can then place bets on the horses in the race as the race is running, up until the winner crosses the finish line.
In-Play prices are much more volatile than prices are before the race starts because they are directly affected by each horse’s performance during the race.
In-Play traders watch the race or match unfolding and Lay and Back accordingly, trying to lock in profits by correctly reading what is happening in the race or match.
Betfair’s In-Play markets allow skilful race readers to profit from Laying a tiring favourite midway through the race, or Backing a tennis player who gets off to a good start. Never before have gamblers had so many opportunities to make money in so many different ways from sporting events that until recently had a very limited number of betting products available on them.
Betfair imposes a 1-second delay on bets that are submitted into In-Play horseracing markets, and a 5-second delay on bets that are submitted into In-Play sports markets. This is to prevent people that are watching the event live from taking unfair advantage of the majority of people who view sports pictures that are delayed by a few seconds.
Hedging on Betfair
Hedging on Betfair is the cherry on top of the ability to trade price movements.
Hedging allows traders to lock in an equal profit regardless of whether the horse or team that they were trading on wins or not, allowing you to completely remove the outcome of the race or match from the equation.
For instance, in the example above, Trading on Betfair, the trader Lays £100 @ 4.1 and Backs £100 @ 4.6, giving him a profit of £50 if the horse wins and no loss if the horse wins. That’s great if the horse wins, but if it loses then you still haven’t made any money, despite having made a profitable trade.
Hedging your £50 profit will make sure that you make the same profit whether the horse wins or loses. You can do this pressing the Hedge button on BetTrader which will divide your profit by the available to Lay price and will then Lay the result of that calculation to give you an equal profit whichever horse wins the race:
Press Hedge Button > £50 / 4.6 = Lay £10.86 on same horse
If Horse wins:
You make £50 (from Laying 4.1 and Backing 4.6)
You lose £39.13 (from Laying £10.86 @ 4.6)
Result = £50 – £39.13 = +£10.87 profit
If Horse loses:
You make £10.86 (from Laying £10.86)
Result = +£10.86 profit
By Hedging your £50 potential profit which you will make only if the horse wins, you can ensure a smaller, but guaranteed, profit whether the horse wins or loses.