commission on trading v betting

[LarjGun]

in one of peter's videos i watched he says (in relation to commission you pay for trading v betting)

"If you have a betting strategy, the % of commission you pay as a percentage of profits is way higher"

i can't quite get my head around why this is the case - can anyone help spell it out for me )

video: https://www.youtube.com/watch?v=db8tQkkSWJQ&t=177s

[weemac]

Trade 100 horses: Profit £20 in each of 50 races and lose £10 in each of 50. Pay (Wins are £1000 * 2% comm) = £20. Gross: £500, net £480

Bet 100 horses: Profit £200 in each of 10 races and lose £11.11 in each of 90. Pay (Wins are £2000 * 2%) comm = £40. Gross £500, net £460

So 100% more commission paid in this example by the bettor for the same gross win.

The higher your commission rate, the worse the overall differential; and it gets even worse if you bet at shorter odds with a higher strike rate!

Commission's a profit killer, but far less damaging to traders than bettors over the long term.

[LarjGun]

thanks weemac for the detailed explanation - i see it now. incidentally the gross profit in the trade example is £500 but £1000 in the betting example - so should that be "lose £16.66 in each of 90"?

[weemac]

thanks weemac for the detailed explanation - i see it now. incidentally the gross profit in the trade example is £500 but £1000 in the betting example - so should that be "lose £16.66 in each of 90"?

Quite right, I rushed it a bit, but the point stands. Do some sums with making £500 gross over 100 events by backing winners at 6/4 or 2/1, and the outcome is appalling for bettors.

[LarjGun]

BETTING to make £500 gross profit

100 x £100 bets at 2/1 (3.0)
say 35% win and 65% lose
profit from wins = £200 * 35 = £7000
losses = £100 * 65 = £6500
gross profit = £500
commission = £7000 * 2% = £140 (28% of gross profit)

100 x £50 bets at 9/1 (10.0)
say 11% win and 89% lose
profit from wins = £450 * 11 = £4950
losses = £50 * 89 = £4450
gross profit = £500
commission = £4950 * 2% = £99 (20% of gross profit)

so when betting - short odds crucify you more than long odds in terms of commission paid

TRADING to make £500 gross profit

Trade 100 horses: Profit £20 in each of 50 races and lose £10 in each of 50
profit from wins = £20 * 50 = £1000
losses = £10 * 50 = £500
gross profit = £500
commission = £1000 * 2% = £20 (4% of gross profit)

i guess it is because when betting you are losing your whole stake for all your losing bets which you need to fully replace + edge which means your overall profit from winning bets needs to be a big number to get a relatively small gross profit

it's not like than when trading as your losing trades are theoretically a small number and so your overall profit from winning trades don't need to be that big a number to match the same gross profit from betting

i'm glad that's clear in my head now - it was annoying me

[jimibt]

thanks weemac for the detailed explanation - i see it now. incidentally the gross profit in the trade example is £500 but £1000 in the betting example - so should that be "lose £16.66 in each of 90"?

Quite right, I rushed it a bit, but the point stands. Do some sums with making £500 gross over 100 events by backing winners at 6/4 or 2/1, and the outcome is appalling for bettors.

that is of course correct. however, should you be lucky enough to hit the premium charge ( ), then the implied commission spirals and trading is a far worse prospect than betting...