Betfair Trading, The Terminology

When you first start out trading, there are quite a few words being thrown around that might not make much sense to you unless you come from a financial stock trading background. In this blog I'll be looking at the words that are frequently used when talking about trading on betfair

Back bet

A back is the kind of bet you'll find in most bookies, a person places a bet into the market backing that 'thing' to 'do' something. For example a back bet on Manchester United to win the EPL requires Manchester United to win the EPL in order for your bet to succeed.

Lay bet

The opposite of a back bet is a lay bet, You are laying that 'thing' not to 'do' something. So when you placed that back bet on Manchester United, the bookies are essentially placing a lay bet on them not to win. If your back bet wins, the bookies have to stump up the cash. if the lay bet wins, the bookies get to keep your stake.
When a lay bet is matched you need to have the liability to cover the payout for the back bet.

Hedge

Hedging your position in its simplest terms is you spreading out your gains - or losses - across a market. Lowering your profit - or losses, but guaranteeing that you will get returns. Hedging your bets is a core concept of being a Betfair trader, if you don't hedge your position, you can lose all your profits - or losses in that market.... Basically you're just gambling.

Tick

A tick is a price movement in the market, if you back a horse to win at 2.00 and the price comes in by one to 1.95, then it has moved one tick. By backing and laying at different ticks you can use the difference in odds pricing to generate a profit. This is the basic concept of Betfair trading.

Scratching a bet

If you're not feeling a market and your first bet has gone in, you can (if you're quick enough) scratch the bet by placing an opposing bet  (remember back and lay bets) at the same price. This is known as scratching the bet.  

Shortening

When a price goes down over several ticks, say from 2.5 to 2.4 then 2.3 this is known as shortening, "the price for that horse, is shortening".

Drifting

When a price goes up over several ticks, from say 2.3 to 2.4 then 2.5 this is known as drifting. "The price on that horse is drifting".

Overround

In a market, the selections will all have odds, these odds represent the 'implied' chance that that selection will win. So a selection at odds of 2.00 has a 50% chance of winning and takes up 50% of the book. This is worked out by dividing the odds into 100 (100 / 2.0 = 50).

If one horse has a 50% chance of winning this 'should' mean that the rest of the fields odds make up the remaining 50% of the book. You will find however, that a market never makes a 100%, it will always be slightly over, this 'slightly over' is called the overround. 

Lets say this is a three horse race:

horse one @ 2.00 = 50% chance
horse two @ 2.00 = 50% chance
horse three @ 20 = 5% chance

In the above example the market has book of 105%. The overround for this market is 5%

Most exchanges will be close to around 103-9% whilst bookmakers can be much higher. A higher overround represents a poor value for backers and more value for layers.

Dutching

Dutching, is a concept that is in some ways similar to hedging, I sometimes call it 'a partial' or 'partial hedge' you are backing multiple selections in a race to win, spreading out your stake over a large portion of the book. By spreading over say, 85% of the book (see overrounds above) you are giving your self a higher chance to return profits. The more you spread your stake the lower your returns, and of course, if you spread over the whole market you'll just lose money. Given the chance of probability, you will eventually lose. This is still gambling and its not something I personally do. 

Arbitrage

Arbitrage, or arbing is the process of exploiting the price difference of a selection between bookmakers/exchanges. If a horse is at 2.00, you can expect the lay bet odds to be higher, however occasionally (but typically corrected very quickly) the lay odds are lower then the back odds. by placing a back and lay bet you can pocket the price difference between the two regardless of the race outcome. Arbing bookies will get your account gubbed or shut down rĂ¡pido. This is because the software that you use to find arbs... Well the bookmakers have that too, their automated software will then pick up that you're arbing and ban you out. Only Arb accounts that you can no longer get bonus value from.

Liquidity

This is a financial term, in betting its used to express how much money is available in a market. If a horse race (a market) only has a couple thousand in unmatched bets spread across the book, and there's not many bets coming in, its not very liquid and some trading strategies just wont work. There's not much value to be had in slow moving (low liquidity) markets, unless you know it'll pick up later and your going in for an early swing. You risky bastard.

Order flow

Another financial term, order flow is the basis in which the market ebbs and flows. By watching and understanding the order flow of a market you can successfully scalp in the high frequency front lines as well as swing on the long term. (long term being from a bet trading perspective).

It should be noted that there are many things that will effect the order flow of a particular selection in the market, the key to success is understanding these factors (I don't know them all myself just yet.)

Scalping

Trading in a medium to high frequency market whereby you back and lay 1 or 2 ticks apart. If the market is trending downwards you may back to open your position with a back bet with the intention of closing with a lay bet that is lower than the back bet, allowing your to pocket a small profit. 

If the market is trending upwards then you may open your position with a lay bet and close your position with a back bet, again, pocketing the price difference. A relatively stable market is important for scalping and big jumps in price can knock out tidy profits. Stop loses can be used to mitigate this. Scalping is an art that is both fun when done correctly and frustrating when the market goes against you. Not great to do on low liquid markets

Swing trading

Using your knowledge of reading a market to determine when a price will shorten or drift and opening and closing your position accordingly. 

Opening a position

Placing a bet in the market with the view to place another one later on to extract value

Closing a position

Placing a bet in the market, having opened a position, closing a position will complete the transaction, you will have either made a profit, loss or 'scratched' your position.

Gubbed

This is a term from my matched betting days, it means that a bookmaker has limited your account such that you can no longer extract value from them, typically any promotions such as free bets will no longer be available to you, more extremely they may limit your ability to stake to just £1, or close your account entirely.

Conclusion

There are probably lots more commonly used words in betfair trading that I haven't listed here, also, if any of what I've said is incorrect in some way, the please feel free to leave a comment. I've only just started out myself so this is me 'confirming' my knowledge by writing it down, it goes in better that way.

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