The way that traders make money on the betting exchanges is by correctly predicting whether the odds on a horse are going to come in or go out. Just like on the financial markets where a trader will 'buy' at a low price and then aim to 'sell' it at a high price, a betting exchange trader will attempt to lay low and back high with an aim to lock in a profit regardless of outcome.
But how do you predict which way the price will move?
The following advice and tips have been collated from various trading blogs and forums. Just bare in mind they are just general tips. Specific strategies and systems are closely kept secrets.
Types of Trading
Scalping: Scalping involve making lots of repetitive trades one after the other. Each trade aiming for only 1 or 2 ticks profits and each position on the market closed very quickly.
Swing Trading: Can be summed up as "letting your profits run and cutting your losses". The trader works out where the price is going and tries to get on board for most of the price movement.
Position Trading: Monitors how the sports event is doing, looking for signs of weakness or dominance and pre-empting the market move.
Long Term Trading: Involves opening positions well in advance (sometimes years) then trading them out much nearer the off.
Which market you decide to trade on depends very much on you, any market can be traded. The three most popular are:
Horse Racing: There are at least 30 horse races each day with each one being over very quickly. If you want to trade horse races you will need to decide whether to trade in-play or just before the off. In-play trading requires substantial research into the runners and current conditions and how they affect the price movement etc. Pre race trading (especially scalping) requires less research and knowledge about the actual horse race but requires more understanding of how the market is acting.
Tennis: Is much slower paced than horse racing with a delay between placing the bet and it entering the market. Most trading goes on in-play and on the match or set odds.
Football Is again much slower paced than horse racing. Most trading happens in-play and on the correct score market.
To begin with you should stick to one form of trading on one market. Read everything you can on it and watch the videos of the professionals trading. Master your chosen market first. Understand the vagaries, idiosyncrasies, trends and timings of the market.
Old Chinese proverb: "man who chases 2 rabbits catches neither".
Learning to trade is a marathon and not a sprint.
When deciding when to enter or exit a trade there are a few things to be aware of:
Graph History: Betfair and most trading tools, such as Bet Trader Pro, provide graphs that give detailed information on how the market has been acting, for example showing how the odds have fluctuated over time or how much money has been matched over time. If you can see that the odds have been steadily rising for the last 20 minutes then you might believe that they will continue to rise.
Weight of Money(WOM): Refers to how much money there is unmatched on either the lay or back sides. If there is a lot more money waiting to be matched on the back side then the odds will tend to go up. If there is more money on the lay side the odds will tend to go down. (Warning: many stratergies that can be bought use WOM too much. It may once have been true that you could trade solely by using WOM but not any more. Also be aware of traders trying to spoof the market, see below.)
Book Over-Round: If the book over-round is below 100% then backing all outcomes will give you a profit no matter who wins. If it is close to 100% then the price movement on one outcome will affect the price movement on the other outcomes. For instance in a tennis match, if the favourite's price is going up then the other player's price must be coming down.
Price Bands: Refers to the total amount matched for each price. If you can see the most of the money has been matched at 2.2 and the price is now 2.18 you might think that the price will go back up.
Market Depth: Refers to how much unmatched money there is spread through all the prices. If the price is at 2.2/2.22 and every tick below for 5 or ten ticks there is thousands waiting to be matched, you can assume that it won't move quickly in that direction. If at the same time there is a lot of money at 2.22 but almost no money above, then you might then assume that if the price breaks the 2.22 mark it will shoot up.
Tick Size: Refers to opening trading positions at tick boundaries. If you laid at odds of 3 then one tick profit would be to back at 3.05 whereas a one tick loss you would back at 2.98. So one tick profit will earn you more than you would loose by a one tick loss.
Spoofing: Spoofing the market is not really a signal but it is something that you should be aware of. Traders will sometimes place large bets a few ticks out from the current price in an attempt to drive the market in one direction while having no intention of letting the money get matched. When the price starts to move the money will be removed. It is also suggested that you do not try spoofing, especially not as a beginner, as the risk reward ratio is very bad.
Don't be scared to take a loss. If a trade goes the wrong way the instant reaction should be to get out. Waiting and hoping that it will turn without any signal to suggest it will isn’t trading, it's gambling. Gambling at very bad odds. Holding out for a 1 tick profit and risking a 20 tick loss.
You need to be emotionally detached from short term results. Your achievement is not determined by how much you make or lose in one day, it's determined by your capacity to make as many good decisions as possible and as little bad ones.
Before going into each trade you should always have a strategy. Know what your stop loss is, how many ticks profit you want to take. What you'll do if the internet goes down etc.
Always trade somewhere free of all distractions. You definitely shouldn't talk on the phone or watch television (unless it's the event you're trading) while trading.
Tools of the Trade
I'm not going to discuss them much here. There is already a thread arguing the pros and cons of Bet Trader Pro vs Bet Angel. But if you are planning to trade on horse racing, or another highly volatile market then you will need one or the other.
Also be aware that live video or ‘live’ showings of events on television are not actually live. They are between a few seconds and over a minute delayed. There are enough traders with proper live streams that the odds will normally react before you can see what is actually happening.
And finally a few choice bits tips from the forums:
"Paper trading is ok but you'll learn a lot faster if you have money in a market."
"Start trading with small stakes, so the learning isn't costing you your house. Then you can up your bank and trade with larger stakes."
"Don't trade angry, pissed or during intercourse."
"Never expect to get the very maximum from a trade. That’s called gambling!"
"Always trade out, otherwise it's gambling. More importantly, it will distort your efforts, so you won't be able to see clearly how good you actually are at trading."
"Once you achieve an edge, then don't stop thinking/evaluating...how can you improve your edge, could you apply it to other sports/activities (you may be 'average' at trading on horse racing but brilliant on football/tennis/greyhounds...how will you know unless you try...)"
"If it goes wrong, get out do not hesitate"
"Don't give up...you can read as much as you like about trading, or keep visiting forums/read blogs etc (a good idea to keep abreast of what is happening in the trading world), but there is absolutely no substitute for experience..."
"Trading and getting it right most times is pretty easy, it's the discipline/risk management that takes the learning."
Please remember that this information isn’t from me but just what I have gathered from reading around. I too am a beginner at trading. So if anything is blatantly wrong please let me know and I’ll change it. Also If anyone has any other tips please add them to this thread as this post definitely isn’t definitive and I have doubtless left much out.
EDIT (16/06/09 22:00): Corrected some punctuation and added a little bit about spoofing.