Betfair trading myths exploded

Having been in the market for so long. I’ve come across many things that don’t stack up with my experiences in the market. This post explains these commonly held views and what I discovered about them in my twenty-year trading career. During that time, I’ve risked a substantial amount of money through the market, which I couldn’t have done if I had fallen for these myths.

I hope they help you understand the markets better and the context in which these quotes are often made versus the reality.

You can’t make money from betting

Let’s start with a biggy. For years I was told, and I told others, that only the bookmaker wins.

But with the dawn of betting exchanges, that completely changed. You were suddenly on a level playing field, and only your ingenuity separated you from potential profit. No restrictions on your stake, no being banned, no palps. It was amazing!

It still surprises me that people are still complaining about traditional bookmakers and sportsbooks when so much has changed and so much time has passed. If you don’t like how traditional sportsbooks or bookmakers act, there is an alternative. You now have a significant number of people that have turned betting exchanges to their advantage.

If you are still sticking to traditional forms or betting and all the problems that entail, it’s entirely your fault.

Why more people don’t, appears to be a bit of apathy, inertia and an industry that makes more from offering poor value to unsuspecting punters. So many people try to gain publicity by saying how unfair the industry is but completely fail to offer the most amazing solution to this problem in a generation.

It’s one of the worst injustices I’ve ever seen. Tantamount to complaining about a starving person, then offering them an empty food parcel because you work for a paper bag manufacturer.

Use a betting exchange.

95% of traders lose

What does this actually mean? 100% of people die, so does that mean nobody lives?

Through some research, I’ve worked out and confirmed how many people are successful and the sort of scope and scale of that number. More than 5% of punters win on the exchange, and Betfair has come out several times and stated publically what the number is. If you use API software, that gives you a leg up; if you trade rather than bet, it’s higher than average. That makes sense.

But of course, any number depends on how you qualify that number. Is it this week, this year, over five years, ten? Without that qualifying term, you can’t possibly use such a statistic. It’s a classic case of statistics used to make an emotional point. But it’s lazy and lacks rigour.

In financial markets, firms must publicly state and publish this number. So you can get a true figure from those entries, and it’s quite revealing. Again it’s not 95% unless you rework the terms to hit that number. But all that said, it’s sensible to set low expectations. Not everybody will make it work, and it’s a competitive market. That’s the reality.

Ultimately it’s a speculative venture and should be treated as such.

But we all die one day, so our chance of success is zero. You could paint it that way. But I think you will agree that’s a very pessimistic view of the world.

You need to predict the direction of the odds to profit.

The first thing to say about this myth is that you don’t need to predict the direction of odds to profit. But the next thing to say is that there are many occasions when that is really easy.

See a horse hard held to post or refusing to go to the post? You can’t command a horse to do exactly what you want, which makes racing so interesting. If you see a horse that doesn’t look like they are calm and in control, it doesn’t take a genius to realise its odds will be re-rated.

But outside of this, I did something really simple when I started trading. I just put two orders in the market and waited for them to match. I didn’t predict direction at all; I just waited for both to get matched. If they didn’t get matched, I just took a loss. That is how I started.

Obviously, the market and I have become more sophisticated since then. But creating a spread between two prices and waiting for them to fill is still a valid strategy.

The market is fixed against you.

When I first started trading in financial markets it felt like this, I can understand why. When starting out, everything does the opposite of what it should.

I learned much later that I was experiencing a range of cognitive biases. The market was bullying me and I had succumbed to these biases.

The quicker you overcome this, the quicker you will see what is happening and come to terms with it. When I did this, it was like I was suddenly looking at things differently. It was really enlightening.

Even if you had all the data in the world available to you, you probably still couldn’t really interpret what is going to happen. That is because you could only really know the intention of any person by reading their mind. The market does whatever it wants, and coming to terms with that quickly will get you further up the pecking order.

So you should view the market as an amalgam of judgements and reactions to those judgements. In short, to be successful, you need to think about and anticipate what people are thinking about.

You need a big bank

If you feel you need a big bank to trade or that’s an advantage. Go out and remortgage your house and give it a try. It doesn’t work like this. If the market can see you, it can act against you.

Using a smaller bank and individual stakes is a much safer way of participating in the market. You can get trades in and out easily and quickly. It’s also less risky.

One of the key elements of trading is to follow a structured trading process. I open a trade, do my best with that trade and then go again. As many times as I feel it’s safe to do so. At the end of that process, I hedge my position.

Say I have a £100 trade size and make £1 per trade. I could repeat that process ten times to earn a 10% return on my trade size. It’s much easier to do this than throw £1000 in the market to try and win £10!

Using too large stakes makes it difficult to open and close a position without taking out some of the money in the market. If you do that from a betting perspective, you get poorer value. From a trading perspective, you end up pushing the position against you on either side. Reducing your chances of a successful trade.

Size matters; Small is good!

Winning is how you get profitable.

Everyone loves a winner, but in betting and trading, that’s not important. Because it is easy to find a winning trade, really easy. Finding a profitable edge is a bit harder.

To be profitable in the long term, you need to have a profitable edge, not necessarily win. Some of the best betting strategies I have don’t win that often and that is more or less why I have an edge with these strategies.

If you are trading an event before it has started, the price won’t move much, more on horse racing. So you have to trade inside that volatility to get a profitable trade. When volatility is very high, such as in play, it’s relatively easy to get a trade-in and out of the market within that frame of volatility. Basically, you will get a win very often.

The problem is that this is because you are in the frame of volatility. Step outside that, and your strike rate will plummet. So in the long term, you will only profit if you exceed this volatility.

Each market you trade will have a base rate at which a winning trade occurs ‘naturally’. Your mission, should you accept it, is to trade above that. That is how you get profitable.

Historical data mining is the key.

I’ve often said that data mining is statistical deja vu.

It’s not that I don’t believe in data mining or collection, as I do a huge amount of it. I spend almost as much time looking at data as I do trading. It’s just that data only tells you what happened, not what will happen.

You could easily find a nugget of information in there that looks profitable, only to put it into the market and find it isn’t. But also, you may infer something from your data simply because you are looking for it. I use data to model and frame opportunities, not to spot specific opportunities.

I advise you to use data as a guide but to use real money in the market to test strategies from day one. You will probably discover more from that, than any data can provide.

Trading psychology is just a load of mumbo jumbo.

First, many people talk about the psychology of trading because it’s part of the mix. Few people truly understand its relevance and importance.

I’ve met many trading psychology experts who are terrible traders. I want to learn from people who were terrible traders and learn how to turn that around. That sounds much more interesting!

I spent my first ten years or so using quantitative measures to figure out what I wanted to do. But the penny truly dropped for me when trying to teach others to trade and explain my trading to others. On the latter, people would often question something I said; this was despite trying to offer the best advice I could.

On the former, I once faced this strange situation where I taught two people something that would work. But somehow, they ended up with two completely different results. It was bizarre. I had to find out why. The answer was in their psychological biases and approach to risk-taking.

Once I worked that out, I furiously read up on every piece of literature to understand what I could see. Having done my research I started seeing it everywhere. Within me, with other people, within the market and on the field of play.

It completely changed the way I look at everything.

Psychology is key to understanding how a market operates, why people do what they do, where opportunities occur, and why.

What’s the big secret?

One common theme I’ve seen over many years is the idea that ‘If only I knew this I’d be profitable. People seem to think there is some magic secret that if only they had access to, they would tap into an unlimited pot of wealth. The reality is somewhat different.

Like most things, trading is a skill. Most people know how to play Tennis and what you should do, but picking up a Tennis racquet doesn’t mean you will win Wimbledon.

Trading is fairly similar. Most methods and styles are reasonably well known, but the tools you use, how you play, practice and your skill can elevate your above others. But remember that you can get enjoyment, fun and success without being a grand slam champion.

Set realistic targets, work hard and slowly but surely, you will then elevate yourself above the level of a casual player. From there, it’s up to you how committed you are and how far you want to go!