Betfair Basics # 2

Part one of this article explained how to place bets on the Betfair betting exchange.

This part, part two, explains how to create risk-free bets.

So, exactly how do we do this?

In theory, it’s quite easy.  Basically, we place a bet on a horse to win the race followed by a bet on the same horse, in the same race, to lose.  Or, we perform the reverse by placing a bet on a horse to lose followed by a bet on the same horse, in the same race, to win.  It’s that simple!

Let’s look the following example, which was taken from a Betfair screen relating to an actual race:

From the above, we can see that ‘Glasson Lodge’ can be backed to win at odds of 8.2.  Let’s suppose that we backed this horse to win and our stake was £50.

If the horse wins the race, we will win (7.2 x £50) = £360.  If Glasson Lodge loses, we would lose our £50 stake.

Ten minutes later, we see the following screen:

Notice how the odds to back Glasson Lodge to win have fallen from 8.2 to 5.9.  Such a fall is not unusual in Betfair’s dynamic environment.  Notice also that the odds to lay Glasson Lodge to lose have also dropped from 8.6 to 6.0.

But how does this help us?

Due to the change in Glasson Lodge’s odds, we can now lay Glasson Lodge to lose.  If we did and our stake was, again, £50 our liability, should the horse lose, would be (5.0 x £50) = £250.  If the horse wins, we would win £50.

Let’s suppose that Glasson Lodge wins the race.

On the first bet, where we backed Glasson Lodge to win, we would win £360.

On the second bet, where we layed Glasson Lodge to lose, we would lose £250.

The net effect of the two bets would yield a profit of (£360 - £250) = £110.

Now let’s suppose that Glasson Lodge loses the race.

On the first bet, where we backed Glasson Lodge to win, we would lose our £50 stake.

On the second bet, where we layed Glasson Lodge to lose, we would win £50.

The net effect of the two bets would yield a profit of (£50 - £50) = £0.

Therefore, if Glasson Lodge wins, we would win £110.  If Glasson Lodge loses, we would break even on the bet.  This is not unusual in Betfair’s dynamic environment where large numbers of bets are constantly being placed and accepted.

What has this achieved?

We created a win-no lose situation and had a ‘free bet’ on Glasson Lodge.  If the horse wins, we win £110.  If it loses, we break even.

That has explained the concept of a free bet and how to create one.

Now let’s go one step further, from a ‘win-no lose’ to a ‘win-win’ situation.

Let’s go back to the initial screen where Glasson Lodge was available to back at odds of 8.2:

As before, let’s suppose that we backed Glasson Lodge to win and that our stake was £50.

If the horse wins the race, we would win (7.2 x £50) = £360.  If Glasson Lodge loses, we would lose our £50 stake.

Given that our potential profit is £360 if Glasson Lodge wins, we can risk up to this amount of liability on a lay bet and still not lose.

If, however, we can lay Glasson Lodge such that our stake is more than £50 and our potential liability is less than £360, we will have created a win-win situation.  For this to occur, the odds on Glasson Lodge must decrease since we will then be able to lay the horse to lose for a greater stake and a lesser liability..  I hope that you all can see this.  If not, no matter.  In our next example, all will become much clearer:

Notice how the odds to back Glasson Lodge to win have fallen from 8.2 to 5.9 and that the odds to lay Glasson Lodge to lose have also dropped from 8.6 to 6.0.  This movement in the odds will allow us to achieve our desired win-win situation.

Here’s how:

Having backed Glasson Lodge, earlier, to win at odds of 8.2 with a stake of £50, we can now lay it to lose, now that the odds on the horse have shortened.  This will create the win-win situation that we desire.

To create the win-win situation that we require, suppose that we lay Glasson Lodge at odds of 6.0 for £68.  The liability on the bet is (5 x £68) = £340.

Now let’s calculate the net effect of the two bets:

Let’s suppose that Glasson Lodge wins the race.

On the first bet, where we backed Glasson Lodge to win, we would win £360.

On the second bet, where we layed Glasson Lodge to lose, we would lose £340.

The net effect of the two bets would yield a profit of (£360 - £340) = £20.

Now let’s suppose that Glasson Lodge loses the race.

On the first bet, where we backed Glasson Lodge to win, we would lose our £50 stake.

On the second bet, where we layed Glasson Lodge to lose, we would win £68.

The net effect of the two bets would yield a profit of (£68 - £50) = £18.

Therefore, if Glasson Lodge wins, we win £20.  If Glasson Lodge loses, we win £18.  This is exactly the win-win situation that I described earlier in this article.

Taking advantage of the movement in the odds of a horse is called ‘Trading’ or ‘Arbitraging’ and that’s exactly what we have done, taken advantage of a movement in the odds of Glasson Lodge.

Although we have described the situation where we first back a horse to win, wait for the price to fall and then lay it to lose.  Trading can be performed in the reverse direction by first laying a horse to lose, waiting for the price to increase and then backing it to win.  Ineither case, the outcome is the same, a trade and a profit.

But can it be this simple?

Let’s think about it.  If it were that simple, no one would actually work for a living anymore and everyone would be trading on Betfair.

So, what can go wrong?

Actually, several things:

· The horse’s odds may not change at all.

· The horse’s odds may change but not significantly.

· The horse’s odds may change but in the opposite direction to the one which was anticipated.

· Technology failure (PC software/hardware, Betfair software/hardware, Internet Provider software/hardware, electricity supply) after the initial bet was placed but before the second bet could be placed.

In the above cases, trading cannot be conducted and the initial bet will either have to

· Stand,  in which case the liability will have to be honoured if the bet is lost

· Be nullified (partially or totally) by the placing of a bet which is equal and opposite to the bet initially placed.

For these reasons, would-be traders are advised to operate in the following manner:

· If it is felt that a horse will drift in the market i.e. it’s odds will lengthen, then the lay bet should be placed first.  When the odds have drifted sufficiently, the back bet should then be placed.  However, avoid horses that have a reasonable chance of winning since the odds may not drift as expected and the liability may have to be honoured since the initial bet cannot be traded.

· If it is felt that a horse will steam in the market i.e. it’s odds will shorten, then the back to win bet should be placed first.  When the odds have shortened sufficiently, the lay bet should then be placed.  However, avoid horses that have a reasonable chance of losing since the odds may not shorten as expected and the liability may have to be honoured since the initial bet cannot be traded.

Also, ensure that you follow our Staking and odds plan since this will maximise your profits and minimise your losses.

We have now dealt with the mechanics of trading.  Now comes the difficult bit:

How do we identify a potential horse to trade?

In order to trade, we need to identify a potential Steamer or drifter.  Tto refresh your memory, a drifter is a horse whose odds lengthen and a steamer is a horse whose odds shorten.

The most reliable indicators that a horse may drift or shorten in the market are:

Weather conditions which change the going (e.g. rain)

Some horses have stamina.  Some have speed.  Few have both.  As a result, those  horses with stamina, but not speed, perform better in soft ground than those that do not have reserves of stamina.  Those horses with speed, but not stamina, perform better on firm ground than those that have stamina.  The conditions which horses are likely to encounter in their race have already been factored into the horse’s odds when they were initially set.  However, if the weather changes, unexpectedly, then the going will differ from that which was expected.  For example, an unexpected shower of rain before a race may cause the going to change from good to soft.  In such cases, the odds of those horses that perform better on firm going will increase and the odds of those horses that perform better on soft ground will shorten.  The unexpected change in going can be taken advantage of when trading since both soft and firm-going specialist horses can now be traded.

Change of jockey

Some jockeys appear more able to bring out the best in a horse than other jockeys.  Now, let us suppose that a jockey is injured during a race and all the mounts that he would have ridden are re-allocated to other jockeys.  If a horse is allocated to a jockey that is considered to be superior to the original jockey, the odds on the horse will decrease and, as such, becomes a trading candidate.  In a similar fashion, if a horse is allocated to a jockey that is considered to be inferior to the original jockey, the odds on the horse will decrease and, as such, becomes a trading candidate.  Therefore, in the event of a jockey being injured, the hoses that the injured jockey was due to ride should be identified as quickly as possible and the replacement jockey identified.

An assessment should then be made as to whether or not the replacement jockey is inferior or superior to the original jockey.  This will determine whether the odds on the horses, that were due to be ridden by the injured jockey, will remain the same, will increase or will decrease.  Appropriate trading activities may then be initiated.

Tipsters

Although most tipsters have ‘questionable’ reputations at best, some have a good  reputation and a substantial following.  As such, some tipster hold considerable sway over the betting markets.  If the selections of such tipsters can be identified as early as possible, appropriate bets can then be placed.  Then, when the odds of the selections have changed, they can then be traded.

Sweating

Whilst in the parade ring, or at the starting post, some horses begin to get overly excited in anticipation of the race and they begin to sweat profusely.  In some cases, the sweating may be excessive and they may even begin to act in an unreasonable manner.  For example, they may rear up occasionally or kick their hind legs into the air.  In the worst cases, they refuse to start the race.

This causes the horse to begin to burn nervous energy.  Energy which, otherwise, could be used in the race.  Should this occur, it is unlikely that the horse will have sufficient energy reserves to win the race, unless it is an exceptional animal.  Such horses may be traded since their behavior will be noted by observers and the horse’s odds will begin to drift.

One word of caution, however.  For some horses, sweating up before a race and performing their quirky antics are perfectly normal behavioral traits and no notice should be taken of it since it does not appear to impair their performance in the race.

Late withdrawals

When a horse is withdrawn from a race, especially if it is close to the start of the race and if the horse was one of the race favourites, it can have quite a dramatic effect on the betting market.  When this happens, the odds on the remaining horses will  shorten.  This is because the chances of the remaining horse winning have now been improved due to withdrawal of one of the fancied runners.  The closer to favouritism the remaining horses were, prior to the withdrawal, the more their odds will fall (as a percentage of their initial odds)..

In these circumstances, it is relatively quite easy to trade.

Be aware, however, that when a late withdrawal occurs very close to the start of the race, there may be insufficient time remaining to place a bet, await a change in the odds and then to place a second bet.

Be also aware that, if the first of the pair of trading bets had been placed and then the horse withdrawn before the second bet could be placed, the first bet will become the subject of Horse Racing’s rule 4 and an appropriate reduction in the odds on the first bet will be applied.