How to trade a low volume market (Scott Ferguson, June 2004)

The beauty of Betfair is that there is such a wide variety of markets. Horse races can have more than 20 runners, whereas a sport like tennis comes down to just two options in the match odds. Some markets will trade millions, others just a few thousand. Profits can be made of all of them, but you have to treat different markets accordingly.

Being a head-to-head market, bookmakers' margins on tennis are relatively tight (average of 108%), but that doesn't mean you can't find value on an exchange - it comes down to judgment and timing.

Let's look at judgment. How exactly are you making your selections? Do you do plenty of research before working out a set of prices (or percentages) in your head, or do you use someone else's prices as a guide? There is no single way to profiting on an exchange - there are many different ways to trade. Some people like the constant action, others like to pick and choose where they play. Either way, you need to have confidence in the prices you are using as a basis for your trading.

Let's use a hypothetical match between Andy Roddick and Tim Henman on a hardcourt surface. You look at their respective lead-up form, noting what sort of players they have lost to or struggled against. Is each player in top form? Is this their favourite surface? Do they have a good record at this event previously? Are they fully fit? What is their head-to-head record?

Do not look at any other prices until you have formed your market. This is important because any outside opinion will influence your prices - you want them to be as ‘raw’ as possible.

After going over all the statistics, you come up with a market of Roddick 1.67, Henman 2.50 at 100%. Now you can look around at the bookmakers' opinions - you note that in the Caribbean where the US-focused bookmakers are, Roddick is marked shorter, whereas in England, Henman is shorter - bookies catering for the parochialism of their client base. Overall though, your market is pretty close, the average is 1.57 (4/7) for Roddick, 2.30 (13/10) for Henman, and this is reflected in the opening market on the exchange.

Now comes the fun part. Everyone can read the 'back' prices on an exchange and compare them to their bookie, but can they look at the 'lay' side as well? Say that you wish to bet on Roddick at any price better than your assessment. You have two options - ask for a price on Roddick well above the market (which will probably stay unmatched), or you can offer to lay Henman at what looks to be a good price, but in effect is only offering you the price you want on Roddick.

How does that work? In a two-horse race, backing one runner effectively offers your layer (or bookie) the reverse price on the other runner. Think of it in fractions. If you have a standard bet with a mate on a football match, you usually will bet at even money or 1/1 - £5 of yours against £5 of his. But we all know not all contests are even. If you want to bet your selection at 4/5 (1.80), then the person laying the bet is receiving odds of 5/4 (2.25) on your selection NOT winning. This could either be 5/4 on the other player in a tennis match, the whole field in a horse race, or the other team and the draw in a soccer match.

Back to Roddick v Henman. You want to back Roddick at 1.70, but the best price on offer is 1.62. Henman's price is currently 2.34. Try offering 2.40 for the Englishman - if matched, this would deliver you a price of 1.714 on Roddick. If this isn’t clear, think in fractions and reciprocal values – lay Henman at 7/5 = back Roddick at 5/7. Remember that early on, liquidity in these markets can be quite weak, however by laying in a 108% market, rather than 100.2% at the close, you can snap up some extra value. If you are confident in your ratings, you can go up before any other prices are available and post a wider margin, and see if you can pick up some easy money from punters too impatient to wait for the market to form.

If the largest bet size on the screen is only £50, putting up an offer of £500 will most likely scare punters away. Be prepared to take small bites to achieve your overall goal. Timing and patience are crucial. You will have to factor commission rates into your projected profits, plus the potential need to vary your prices to get all of your bets matched.

Make use of the settings option – above every Betfair market is a link called ‘options’. Click on this, and then...

1. Include settled bets in P&L figures – important for long-term markets, eg tennis tournament or Champions League winner where selections are eliminated along the way.
2. Show P&L figures net of commission.
3. Show ‘What If?’ figure (As if unplaced bets were matched).

The last option will save you time and money when trading – it does all the calculations for you when trying to hedge and trade.

If you manage to lay Henman at 2.40, giving you a price of 1.714 for Roddick, you can then improve your price by laying some back. Laying £100 at 2.40 gives you a risk of £140, a profit of £100. If you laid Roddick for £50 at 1.64, your position would then become Roddick wins +£68, Henman loses £90 - a net price of 1.755 for Roddick, and a price almost impossible to find anywhere else!

Trading on an exchange gives you more options. You can trade in and out of positions, put up offers on both sides according to your ratings, or just follow the money trail and go with the flow.