If favourites are more likely to win, why not trade on them

[OvergrownHeffo]

I know this is going to come across as hilariously stupid but I cant wrap my brain around why this wont work.

A favourite has a higher chance of winning, thus lower odds. Higher risk for a lower reward. I get that. But if you're looking at it from a pure trading point of view, would it not make sense to back the favourite and hope it comes in?

For example, a tennis match. Favourite's odds are 1.7. If I back at 1.7, then queue up a lay at 1.5, and a 'stop loss' at 1.9 - either way its the same absolute value in the negative or positive. However as the fav is more likely to win, then 6/7 times out of ten I would hit the 1.5 mark rather than the 1.9 mark?
I would either lose 0.2 or gain 0.2, but Id more likely profit over time?
I know its not that easy, what am I missing?

[Fugazi]

Got me thinking for a minute then.

You lose more when it hits 1.9 than you gain when it hits 1.5, thats the missing part. Works out break even over a long period. And then your Betfair comission to be paid on top

[TupleVision]

Yeah basically what Fugazi said:

Risk-Reward is Not Even
You assume that the odds will move in your favour more often than they move against you. But the problem is:
If the market is efficient, the probability of hitting 1.5 before 1.9 is not necessarily skewed in your favour.
If the game starts and the favourite struggles (e.g., loses a service game in tennis), odds can jump to 1.9 very quickly.
When things go well for the favourite, the odds drift down slowly. When things go badly, they drift up quickly. Asymetric risk basically

[OvergrownHeffo]

Got me thinking for a minute then.

You lose more when it hits 1.9 than you gain when it hits 1.5, thats the missing part. Works out break even over a long period. And then your Betfair comission to be paid on top

Would I though? The market is assuming the fav will win from the outset. If I back with £1 at 1.7, and exit at 1.9, I will stand to lose £0.20 if the fav goes on to win, and nothing if the other player wins.
Conversely enter 1.7 and exit at 1.5, I stand to win £0.20 if the fav wins.
We then just have to ask ourselves which outcome is more likely, and from the start the market suggests its skewed towards the favourite.
As TupleVision mentions, market sentiment is probably more likely to swing higher if the fav messes up (as its no longer as certain) then to slowly come in as the favourite 'proves themselves' so that would probably mean I'd still have more losses than expected - but interesting thought experiment nonetheless

[ShaunWhite]

The price at time A and the price at time B aren't comparable because the situation has changed.

To make money betting or trading (same thing) the you need a positive expectation. If the initial price is correct, and the price you choose to hedge at is correct then you can't make money.

Or to put that in a more traderly context, if the size of the move only corresponds to %of the time you correctly predict that move, then you can't make money.

With enough data you'll find that betting blind, prices change by a certain percentage approximately as often as that change % suggests. Eg things halve in value 50% of the time, aka change% occurs 1-change% of the time. It's the same regardless of favouritism, sport, pre or in-play. It's why the markets are described as being predominantly 'efficient'

[Big Bad Barney]

I'm reading this book at the moment..

IMO, it's not a great book...gotta force myself to finish it just so I can mark it as done....
https://www.amazon.com.au/Everything-Gu ... 1721400214

He reckons the public always bet on favourites and you'd be wise to be contrarian about it as that's what the sharps do, so I guess ya gotta be sharper than sharp for that to work....maybe that's just America though .... as commented by smart people above I don't think it works like that...

[sionascaig]

However as the fav is more likely to win, then 6/7 times out of ten I would hit the 1.5 mark rather than the 1.9 mark?
.....
I know its not that easy, what am I missing?

Some of your "winners" will be "losers" first (hit 1.9 before going on to win) therefore proportion that that just steam in to win likely far lower than you expect.

Check out some of the old Cheltenham Festival threads though..

There was a strategy (sorry can't remember who called it out), to back the 1st to trade <2 in-play that had a very high strike rate, and over the whole festival could generate a profit... That meeting was a special case though and no idea if TPD has impacted that strategy now...

[Fugazi]

Often OP if I don't understand something I ask on here and if I still dont understand, screenshot or copy/paste the thread into chat gpt and it can help.

Also, carry out at minimum stakes on BA and watch what happens over time. Try not to get excited if it goes on a big win streak to begin with!

[ShaunWhite]

Also, carry out at minimum stakes on BA and watch what happens over time.

Not much doubt it's just going to lose. There hasn't been any mention of where the edge is, it's just random betting. Falls under the category of if it's that easy then everyone else must be stupid not to have seen it.

It's also very much from the perspective of a punter rather than from the perspective of who punters give their money to, us. That's a mindset change a lot of people struggle with.

[Fugazi]

Also, carry out at minimum stakes on BA and watch what happens over time.

Not much doubt it's just going to lose. There hasn't been any mention of where the edge is, it's just random betting. Falls under the category of if it's that easy then everyone else must be stupid not to have seen it.

It's also very much from the perspective of a punter rather than from the perspective of who punters give their money to, us. That's a mindset change a lot of people struggle with.

Oh yeah its certain to lose. Sometimes though people need to see exhaust all the easy routes before then starting to spend time analysing markets without placing any bets

[SpikeyBob]

Are my calculations wrong for hedging here?

i.e. hedging at 1.5 gives 13% profit (including 2% commission) whereas hedging at 1.9 for a loss loses 10.5%

NoughtPointTwoDifference.png

This is based on OP's original example question.

[weemac]

1.7 to 1.5 makes about 27% more than 1.7 to 1.9 loses.

[jamesedwards]

Some of your "winners" will be "losers" first (hit 1.9 before going on to win) therefore proportion that that just steam in to win likely far lower than you expect.

This is the reason why it doesn't work.

[jimibt]

Some of your "winners" will be "losers" first (hit 1.9 before going on to win) therefore proportion that that just steam in to win likely far lower than you expect.

This is the reason why it doesn't work.

yup - this is the fly in the ointment...

[natalieportman]

I know this is going to come across as hilariously stupid but I cant wrap my brain around why this wont work.

A favourite has a higher chance of winning, thus lower odds. Higher risk for a lower reward. I get that. But if you're looking at it from a pure trading point of view, would it not make sense to back the favourite and hope it comes in?

For example, a tennis match. Favourite's odds are 1.7. If I back at 1.7, then queue up a lay at 1.5, and a 'stop loss' at 1.9 - either way its the same absolute value in the negative or positive. However as the fav is more likely to win, then 6/7 times out of ten I would hit the 1.5 mark rather than the 1.9 mark?
I would either lose 0.2 or gain 0.2, but Id more likely profit over time?
I know its not that easy, what am I missing?

Even if favourites win more often, that doesn't necessarily mean the price will always move in your favour before they do. If your exit at 1.5 happens 6/10 times but the stop loss at 1.9 happens 4/10 times, the losses could outweigh the gains over time.

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