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Can you trade betting exchanges cold or do you need knowledge?
Learn how betting exchange professionals may cold trade for profits and find a realistic template for you to do the same thing.
Published on 17 November 2018
Updated on 17 November 2018
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What is a cold trader?
A cold trader is someone that trades on the betting exchange markets without knowing much (or anything) about the teams they’re trading. A betting market trader may understand the trading environment by monitoring the betting market and making trading decisions.
This means that traders and soccer bettors may not be experts in the teams where they may risk their money but use this information and market dynamics to find profitable betting opportunities.
Does cold trading sound realistic?
Well yes, there are many professions, usually involving money where people trade items of value to profit from the difference between the buy and sell price.
This is shown with some of the equity trading around the world’s financial markets, property trading, etc. It’s not always a requirement to understand the item that must be bought and sold but understanding the market where the buying and selling takes place.
If we take the same approach with football betting, we can assume some people will take the time to understand fundamentals of the different teams and the statistics for the different matches.
Whereas another gambler (who may not see themselves as bettors, but more traders) will not care about the fundamental statistics but be more concerned with how much the items (i.e. the different football teams) can be bought and sold for.
If we think about football there are many areas where you could become an expert; team ratings, mathematical betting calculations, match statisics, team ratings, individual player ratings, corners, relative team performance, countries, leagues within the countries and teams within the leagues within the countries...and that is only scratching the surface!
What if you didn’t need to understand all of this, but you had a platform that could help you decide where to place your bets?
This would help you to find selections that could give you an edge over your competition, the competition being each of the punters placing bets, the bookmakers accepting those bets and the betting exchanges where much of the trading takes place.
How do cold traders do it?
Cold traders may look at a range of factors, but they’re more concerned with buying at the right price and selling at a better price.
Fundamentally, the price of an item is worth as much as someone will pay for that item. The fundamentals of the item may not change, but the market valuation of the item may change.
An easy example would be paintings from Vincent Van Gogh or Claude Monet. Van Gogh and Monet were unorthodox painters and illustrators in their era and the public may not have appreciated the tremendous skill of both artists. However, fast forward several generations; Van Gogh’s pieces and Monet’s work are both sold and exchanged for vast sums of money, which may have overwhelmed both artists when they were alive.
The fundamentals of the paintings have not changed throughout the years, the pieces of art still exist on the same canvass with the same paints and look the same, considering the affect that time has had on each their pieces!
However, as soon as the world changed over time and therefore, the public’s perception of their artistic work changed, so did the perceived value of the paintings, which in turn increased the value and the amount that each piece could be sold within the public and the private auctions.
How does public perception relate to football matches?
At a simple level. If you’re planning to trade on betting exchanges, you’re looking at Backing and Laying. Backing is aligned with buying, which means you want to buy as low as possible, so you’re hoping the odds fall. Whereas, the lay bets are hoping for the exact opposite; rising prices or rising odds.
So, if you back at low odds and lay at high odds, you can quickly make money by trading the difference with other traders that are willing to buy and sell at an appropriate price.
What does this really mean? This means that you’re looking to place trades or small bets when the odds are low and then lay the same bets when the odds rise. This means that you can generate profits based on the moving prices and not so much based on the fundamentals of the selection.
You just need to understand or have a method to differentiate when the odds will change and identify when the odds are likely to change in your favour.
Sometimes you don’t need to understand why the prices change, but you need to appreciate that the prices will change!
How do you predict odds movements?
Odds movements can be predicted in several ways:
• Watching the live odds movements and make the best decision on the ups and downs
• Understand changes in the market (i.e. Are there injuries or suspensions), which may cause the odds to change? Are there likely to be unforeseen changes within the market and what is the best way to anticipate those changes?
• Software that will automatically monitor and make predictions about prices based on historical price movements could be useful. This is often used very close to kick-off when markets are highly liquid and price changes can be identified.
• Volume of money placed within a single betting market can change the market dynamics and alter the odds within that market
What are the different trading approaches?
There are fundamentally three different approaches to trading, which can be used independently or in combination; Significant market movements or swings, volume of smart money placed within certain markets or profiting (i.e. scalping) profits from small price fluctuations leading up to and during an event.
Market Liquidity is an important factor
How do you determine market liquidity?
You can look at the number of matched bets on Betfair and understand how much trading volume exists within different betting markets. This approach is the easy way to make a judgement on the market liquidity and an approach, which is used by countless people every day.
Highly liquid betting markets
The most popular soccer matches in the most popular leagues in the most popular countries are usually the most liquid betting markets, so the English Premier League or the Spanish La Liga are both leagues that have a lot of trading volume and therefore, liquidity.
It is always easier to place bets (and get your trades matched) within highly liquid markets, as often, there is someone there that may want to take the opposite position.
How do you recognise liquid and illiquid betting markets?
The great thing about the modern world, is that all this information is freely available within betting exchanges, which helps bettors and traders to make sensible trading decisions based on the money flowing through a market.
Illiquid betting markets
If liquid betting markets are subject to highly frequent trades, the illiquid betting markets are the exact opposite and could be one of two things:
• The market is not very popular, such as less well-known leagues with little betting action
• Long-term bets that may have low betting frequency, such as the winner of a cup tournament months before the tournament has started.
How do liquid and illiquid betting markets correlate?
Depending on your trading strategy the liquidity of the market could make or break your overall strategy.
Let’s consider a slow-moving betting market, such as the managerial sack race, which bookmakers use to judge the first or the next manager to be sacked within a given period.
Under normal circumstances, the next football manager or coach to be sacked should be slow moving and take a while to yield results (i.e. illiquid market).
However, if there is sudden news or continuing poor performance by a certain team, rumours start to circulate and the liquidity within the market can quickly change as more money is wagered on the outcome.
How to find value when cold trading betting markets?
Theoretically, you can find value with anything at the bottom or the top of the value. If we go back to the painting example, value can be found when the paintings are undervalued (you can buy under market value) and when the paintings are overvalued (you can sell above market value).
If we assume that the fair market value, or the fair price of the item is approximately the middle value between the high and the low prices, we can find a way to judge the potential trading opportunity and then judge how we could buy or sell our paintings.
Now, simply replace paintings with soccer results and you have the same concept. Is the market over valuing or under valuing different outcomes?
You can probably see that it’s not even necessary to understand why the market is over or undervaluing the outcomes, but the simple appreciation that betting markets are not always efficient provides significant scope for you to profit.
How do you identify cold trading opportunities?
Real life cold trading opportunities can be discovered through betting statistics with detail on changing odds and rate of change, volume of money wagered within a certain amount of time and market volatility.
This can all help you to discover trading opportunities where the betting market is acting inefficiently and overvaluing or undervaluing a specific outcome.
The competitive nature of the betting exchanges, such as Betfair, Betdaq and Smarkets, mean that you will have to be on your game to ensure that you can compete with the professionals.
You must find a way to profit from selections and trades over the long term and ensure you’re making sensible betting decisions.
If you’re not making sensible betting and trading decisions, there will be a cold trader out there, who will back or lay your bet and make a profit without even thinking twice…
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