Price moves

[redtra]

For a while, I've been trying to figure out why prices on betfair move in a similar way to bookie prices but can't quite understand the reasons.

Not sure if my reasoning is correct but this is what is puzzling me...

A bookie will adjust the price of a horse to keep the book balanced. If a favourite is being backed, the price shortens because the bookie wants to save profits if it wins, and if so many punters have faith in the horse, it's chances of winning are high. The bookie keeps the book balanced so that if a person backs every horse, he can not win overall...and the bookie makes a profit.

So, keeping a balanced book is crucial to a bookie because that is where his profit comes from...but, on the exchanges, betfair do not make a profit in the same way. They make their money as commission from the winning bets.

Wouldn't it be better for the exchange to let prices drift to attract more punters to back the favourite if it has a good chance of winning? Then, the exchange makes more profit from all the winning bets. Does this happen already or does the exchange keep their books balanced in the same way as the bookie?

This is a bit of a long winded question but I would love to know what others think

[L.o.S]

The prices on the exchange are dictated by so many things, but in general if a price is better than the bookies people are more likely to come in and back it. If a horse is being heavily backed, it's price will come in, if it is being heavily layed then it will drift.

You have a mix of backers, layers, arbers, bookies offloading liability, manipulators and traders all pushing the price around.

Betfair don't/can't force a price of a fancied horse to drift because if it does people will likely see the price as value and back it. Also people have to be willing to take higher liabilities in order to keep laying the horse, again something that Betfair can't control.

Plus they make a profit on the lay bets that win too, so really no matter who wins, Betfair will win.

I think it's all part of the same ecosystem; Bookies cut prices, Betfair prices become value. Betfair prices drop, bookies have to drop in order to avoid taking huge liabilities from arbers and value betters. And so forth.

I think ultimately the question might be a bit flawed, Betfair don't have to balance the markets, just provide the platform and let the customers do the rest. Although given their track record, it wouldn't surprise me if they were up to something fishy!

All my own opinion, I'm open to corrections

[barlorca]

Forget the exchanges, prices move by what people think, this is typified in the weight of money.

Odds move by what people expect. If something is going to win the odds offered will come in (shorten),
if people expect something to lose odds will lenghten!

Simples

[redtra]

That's the thing I missed LoS...that lay bets also result in profit. Thanks for pointing that out for me! I asked the question because quite often the price seems to move against the weight of money, or so I thought, but it seems it is just following it.

Thanks for simplifying it for me barlorca...i'm going to try trading without too much thinking things out today and see what happens!

[L.o.S]

WoM is one of those things I'm still undecided on, I've asked a lot of opinions of people on the subject and some swear by it and others disregard it. I think it's just an indicator to be used alongside more real indicators since it can be faked, whereas a big gamble on the favourite is a 'real' process.

I read an article this morning with a lot more details about who is affecting the market and when, it's quite long but worth the read IMO

https://sites.google.com/site/sportztra ... ce-trading

[gazuty]

A bookie will adjust the price of a horse to keep the book balanced. If a favourite is being backed, the price shortens because the bookie wants to save profits if it wins, and if so many punters have faith in the horse, it's chances of winning are high. The bookie keeps the book balanced so that if a person backs every horse, he can not win overall...and the bookie makes a profit.

So, keeping a balanced book is crucial to a bookie because that is where his profit comes from...but, on the exchanges, betfair do not make a profit in the same way. They make their money as commission from the winning bets.

Wouldn't it be better for the exchange to let prices drift to attract more punters to back the favourite if it has a good chance of winning? Then, the exchange makes more profit from all the winning bets. Does this happen already or does the exchange keep their books balanced in the same way as the bookie?

The exchange operator does not determine the price.

And when things get out of whack on the exchange, people like me and others are there to mop it up.

Also, for a traditional bookie, when the favourite wins, they lose. Generally a traditional bookie has a very unbalanced book (less so for very big bookies and corporates but even then they rely on the overall rather than individual events where their books can get out shape). A traditional bookies result is maybe break even on the second favourite and great on everything else and maybe exceptional when an outsider pops up. I often have books where no one has backed half the book. May it so continue.