01 The concept of trading / Betfair Education / 29 January 2008 / Leave a comment

As the volume of matched bets on the exchanges grew a new sort of pattern of activity developed. Rather than attempting to make a judgement on the underlying race or taking on risk as a bookmaker, shrewd punters started to trade the movements in the odds. Enabling them to make a profit regardless of the result.

Traders, as they are called, look at the odds and make a judgement on the direction of the movement of the odds and make money by correctly predicting this movement. The underlying event, the race, the runners, the course, the going, the form are all generally irrelevant.

Traders on sports markets operate in a similar way to city professionals working on conventional financial risk markets. On the stock and futures market there are huge amounts of people trading the movement in prices of publicly-traded companies, foreign exchange and commodities amongst other things.

Nobody tries to work out if for example Vodafone PLC is undervalued or overvalued; or whether the world demand is increasing for oil or not. They are just interested in the short-term price movement.

If the price is going to go up then they buy it, if it is going to fall they sell it.
They make money by placing buy and sell orders into the market to take advantage of these price movements. Traders on betting exchanges do exactly the same thing.