Sports trading basically means the art of ‘backing’ and ‘laying’ betting odds in order to make a profit before the end of an event and more popularly used in horse racing. When you ‘back’ something you are hoping for that event to occur and when you ‘lay’ you are banking on that event NOT happening.
You bet £10 on Lucky Lad to win a horse race at 2/1 (3.0 decimal). If it wins, you enjoy a £30 return and a £20 profit. If it doesn’t win the race, you lose £10.
You lay Lucky Lad for £10 at 2/1; if it doesn’t win the race, you win £10. If it does win the race, you lose £20.
Sports traders can lay at short odds (less than Evens typically) and back at long odds. When you do this correctly, you can actually make money before the event even starts!
Sounds Great – What’s The Catch?
Trading on betting exchanges such as Betfair requires speed of thought (and a lightning fast Internet connection!) When you bet in the traditional manner, you can only lose what you stake.
When a trade goes wrong on the exchanges on the other hand, you can lose substantially more. As you saw with the above example, betting £10 on Lucky Lad can only cost you £10 but laying it for £10 can cost you more.
How To Get Out Of Trouble
Create a Stop Loss Strategy
In the world of financial trading, creating a stop loss is an important strategy as it prevents you from losing everything should a trade go bad. When it comes to betting exchanges, you should place a stop loss order which ends the trade at a point when the losses reach their acceptable limit. Here are 3 good reasons to implement a stop loss:
1. It allows you to predict the maximum possible losses in each trade.
2. It helps when calculating the all important risk vs. reward ratio on each bet.
3. It helps you develop discipline. If you use a mental stop loss, you are responsible for exiting the trade at a predetermined point. Of course, it is possible (and better) to set up an actual mechanical stop loss on Betfair.
The Stop Loss In Action
Let’s use a football example: you decide to lay Manchester United at odds of 2.40 as you expect a profit from a potential lengthening of the odds. A quick look on Oddschecker shows that the shortest odds available are 2.30.
In this instance, you believe 2.20 is a good place for a stop loss on the trade. In other words, you get out of the trade automatically as soon as the odds drop to 2.20.
By doing this, you immediately have a plan in place should the odds not lengthen pre-kickoff as you planned but actually fall below 2.20.
If you elected to lay Man United for £1,000 at 2.40, your liability is £1,400. If you decide to implement a stop loss at 2.20, your maximum loss is now down to £200.
Now for a horse racing example: in an extremely competitive race, you decide to lay Hurricane Fly at 2.70 in the belief its price will rise on account of more money coming in for Jezki and other rival horses. Once again, a stop loss strategy prevents this trade from going bad quickly.
If Hurricane Fly starts the race at odds of 2.00, you would face a severe loss should you decide to exit the trade or else you are forced to ‘gamble’ and let the bet ride. A better strategy would be to implement a stop loss of 2.50 which will prevent a complete disaster from occurring.
Without a stop loss, your £1,000 lay has a liability of £1,700; setting a stop loss at 2.50 enables you to exit the trade with a max loss of £200. In this instance, it is irrelevant if Hurricane Fly starts the race at 2.00 because you have already traded your way out of trouble.
The single biggest mistake traders make on the betting exchanges is to wait too long to exit the trade. Websites like Betfair operate at warp speed so even a 10 second delay can cause the odds to change significantly.
A popular trading option in football is to lay the draw in a game involving a heavy favourite. In this case, you may lay £20 on the draw which is 4/1 (5.0 decimal). If the game doesn’t end in a draw, you win £20. However, you lose £80 if the game does end in a draw.
A common mistake is to keep the trade alive when the underdog scores in the belief this will significantly change the odds in your favour. In actual fact, it makes the draw far more likely as the underdog either needs to hang on or the favourites need to score two goals without reply for your bet to win.
Another mistake is to relax when the favourite scores. Instead of being greedy and trying to rack up more profit, shrewd traders immediately cash out and move on to the next bet.
The ‘Magical’ Scratch Trade
If you wish to be a success when it comes to trading on horse racing on the exchanges, you must master the scratch trade. This is effectively the practice of Backing and Laying at the exact same price without suffering a loss. Simply put, it is the single best ‘get out of trouble’ strategy you have when trading horse racing.
New traders don’t like scratch trades and believe they are a waste of time; this is especially the case when the price goes the ‘right’ way. Instead of being happy to get the practice, they focus on the money they ‘lost’.
However, if you manage to scratch and get out of the market before the price goes the ‘wrong’ way, you actually save quite a bit of money and avoid losing on a bad decision.
Don’t Persevere With Losing Trades So They Become Bets
The best traders don’t necessarily have the biggest wins but they do avoid heavy losses. The moment your average loss exceeds your average win is the moment you should realise that you’re doing it wrong! It is incredibly hard to have more wins than losses; the best traders can actually make an overall profit even with a success rate of less than 50% on their trades.
The worst mistake you can make is to stick with a trade and allow the race to run because the trade went against you by quite a margin. Continue on this path and you end up both trading and gambling badly which leads to financial ruin.
All it takes is a single bad trade to wipe out 10 good ones if you get it badly wrong.
Think Fast Not Long & Hard
While you must do your research and be considered with your trading choices, there comes a time when you have to ‘do’ rather than think. Occasionally, traders can fall into the trap of falling in love with a trade to the point where they would rather stick it out to the bitter end than escape with a small loss.
No matter how well-thought out a trade is, it can still go wrong due to the unpredictability of the markets. When this happens, deal with it and move on.