10 Other Strategies / Betfair Education / 03 September 2008 / Leave a comment

Each month in our InPlay newsletter, we have a section called Strategy of the Month. Don't be frightened if this doesn't sink in immediately, it is quite an advanced one.

Enhance your betting education with a lesson in price leveraging. The key point is to note here is that every form of investing is gambling, whether it is buying shares, investing in property or backing the favourite in the 14.45 at Ascot. There are risks involved in all of them; there is no guaranteed way of making money.

Price Leveraging

The objective - to get a better price than has been available so far by trading, in order to keep a position until the end or create a time buffer before that price is the correct one.

Football is the easiest example to use as price trends in-running are dictated by the scoreboard and the clock. But you can adapt this to any market. The first thing to be clear on is that you are not worrying about the result of the match/market, only the price trends after 5, 10, 20, 30 mins.

The scenario:

You are confident today's game won't be a draw but it is likely to be low scoring. You don't fancy either team to score in the first half-hour. You have several options:

1. Take a 90 minute approach and lay the draw before the game (approx 3.4) as your only bet.

2. Wait 35 mins until teams step up the pace and start going for it a bit more, meanwhile the price has dropped to just under 3. Laying at this price means risking less to win the same amount.

3. Watch the first 5-10 mins, get a feel for the game and then trade the draw as the price begins to move.

Key point - the draw price rarely moves more than a couple of ticks (3.4 to 3.3 equals two ticks) in the first ten minutes, so backing it early only provides you with possible downside early in the game if a goal is scored. With over an hour to go, the draw price can't shorten a great deal so there is no benefit for the trader who wants to back then lay.

So you back the draw at 3.2 after 12 mins with the intention of trading out 20mins later if all goes to plan (ie no goals). When the draw hits the price you were looking for, say 2.9, you have several options to trade out including:

A - take your initial stake back

B - use the payout link to balance out your green book

You must click on the word 'Payout' directly above the lay stake box, then add together your risk (red, £20) plus potential profit on selection you are trading (green, £44) for the correct figure to input. Ignore the minus signs.

C - change tack completely and lay the draw for more

You now have a position where you have effectively laid the Draw for £20 at 2.6, (-32, +20) a price which has yet to be seen. This means you have 15-20 minutes of 'buffer' before that figure is the true price of the Draw.

Summary

There is no 'right' way to do it - the choice is yours. How you trade it depends on your risk profile, or how you wish to trade. Always consider what can go wrong, not just what can go right.

Using the What If and Payout functions, you can check your maths, propose bets etc to see what your book would look like if everything went to plan. But bear in mind, if everything went to plan every time, there'd be no such thing as bookmakers or betting exchanges!

Real life analogy

Forget about gambling for the moment. Imagine you have found some land and built ten apartments on the property. The total cost of the land and construction is £1 million. At what average price do you need to sell each unit to break even?

Hopefully all of you would answer £100k.

But imagine if the market was booming while you were developing the apartments, and you wanted to cash in on that. You sell two units at £250k each off the plan. What are you then left with? What's your new break-even point?

£250k +£250k = £500k

For the remaining eight apartments, you only have to make £500k to break even, so your new break-even point is 500/8 = £62.5k.

By selling two units at a better price, you have leveraged the price of the remaining asset into a very favourable position. You could withstand the market collapsing all the way down to £62,500 each before you would be looking at a loss. And that is the concept of price leveraging.