Trading Strategies of the Sports Traders - Assignment Example

Critically outline trading strategies that sports traders employ with betting exchanges which would not be possible with bookmakers, and discuss the potential risks and rewards of such strategies. A betting exchange can be described as an entity which avails trading amenities for bookmaker or retail customers who purchase and trade contracts. The contracts have the two options whereby the payoff comes as either certain constant amount of money or nothing. This is dependent on the outcome of a future occurrence. Events, such as sports and horse racing, form the major trading area of betting exchanges; others, such as elections and present events, also make up their trade areas. The history of betting exchange dates back to May 2000 after being realized by Flutter.com in the U.K (Hausch and Ziemba 414). Just like other kind of exchanges, betting exchanges is entirely based on liquidity, therefore, customers channel their effort and resources on exchanges in which they have the confidence of pairing up with a corresponding counter bet. Betfair, which is one of the largest in the betting industry, uses decimal odds in place of fractional odds due to its popularity in the industry. Because of betting exchange, bookmakers have been permitted to become bookmakers and have also turned bookmakers into punters. It has also made it possible for an individual to navigate between roles from one race to another or even be able to play both roles concurrently. The arrival of exchanges, avenues of making money have increased from betting (Hausch and Ziemba 406). In exchange betting, it is not all about backing and laying for an individual to make money. Many people prefer trading prices on exchange markets to realize profits irrespective of the winning or losing horse. They act like readers of the stock market who buy and sell in and out of the marketplace and eventually make money on variations in the odds. Betting exchange is effective in encouraging such kind of activity since it causes an increase in liquidity; this can be attributed to the huge sums of money coming and going out of the market. For example, Betfair and BetDaq allow computer boffins to develop programs capable of accessing API. This is a jargon which enables the computer to have a direct line to the exchange and compute scores of the bets in a matter of seconds. The use of API also enables the one to perform computerized betting strategies. The innovation, however, does not require compulsory computer programming in order to use it (Hausch and Ziemba 405). Existences of open minded policy of the exchanges have encouraged the adoption of great software that eases less computer oriented kinds of trade in a less complex manner. Many products are available in this area and they vary with the tactics to be employed. BetAngel, for instance, is software which is worth mentioning since it is provides a free product called Bet Angel Basic responsible for enhancing the website interface Betfair. The software ensures automatic refreshing of odds and features a “green up” choice that is significant in making sure one makes a profit out of race irrespective of the result so long as one has a trade position that is considered successful (Hausch and Ziemba 425). For the case of trading, it is possible to get out of a position when it starts to turn on you. This will cut down on the losses unlike for betting where there is no quitting. This would, therefore, mean that it is very significant to make out when to leave and to take it on the chin. These help in making a quick recovery of one’s composure and continue to the subsequent trade. It, therefore, means that it is not advisable to chase after losses. Betting exchanges have been crucial in revolutionizing betting and thereby ensuring more chances of making bet pays. Opening an exchange account allows one to become a bookmaker, punter or trader concurrently. According to Hausch and Ziemba (406), majority of exchanges get their money from commissions they charge their customers on each market or event held. This is normally calculated as a percentage of net winning on each event or market. Exchanges have become of great help on for instance gamblers who’s betting activities previously had limits imposed on them by bookmakers since exchange have no restriction on the bet size they can place. The only restriction is that the opposing customer must be willing to cup tie their bets. In addition, the odds obtainable on a betting exchange are normally better when equated to those provided by bookmakers despite the commission charged since the middle men have been eliminated. Since the main objective of exchange is to concentrate their liquidity in the fewest markets possible, they lack present suitability not to restrict several parlays betting. Betfair, for instance, offers accumulators only that they are few numerically and type. Another drawback is the user is not able to establish the outcome contained in the accumulators (Hausch and Ziemba 444). Huge capital and liquidity that come with exchanges have made them welcome traditional punters. For punters, the existence of mixed decision has made this impossible. The mandates given to traders and arbitrageurs to “seed” the markets with competitive prices are a situation that could have been impossible was it not for exchanges. The 2008 imposition of premium charge by Betfair was seen by others to affect mostly skilled traders who have been thought to trade for loss in regularly; therefore, this move was to ensure that they pay less commission (Hausch and Ziemba 359). The capability of placing bets in-running or in-play that is while the race is in progress without risking the operator is another advantage of exchange model. This is limited to common events which are widespread and enjoy live television attention. For the case of non-in-play bets, they are fed into the system after customer placing their bet. In-play bets do have delays that might be created to allow crooked customers to take bets which for one reason or the other become highly favorable. Managing the market by the operator also becomes possible as the betting is temporarily stopped at the end of every occurrence. This may be done to ensure that all the unmatched bets are nullified (Hausch and Ziemba 528). Traditional bookmakers have an advantage over exchanges in that bookie are ready and capable of permitting customers to bet on credit. These are guided by reasons such as exchanges operating on much tighter margins with the effect of lessening their bad debt absorbing ability. Other reason is that letting customers to bet on credit would, probably, compromise customer confidence in the exchanges’ financial integrity, especially after considering the effect of the continuing credit crisis and the close relationship between internet betting and betting exchanges (Hausch and Ziemba 404). Discuss to what extent the innovation of betting exchanges increased consumer welfare in the sports betting industry? Hausch and Ziemba (400) assert that innovations in the betting sector have resulted in many positive impacts on the consumer welfare. Bookmakers, for instance, have been able to shift their off-shore online and telephone betting actions to the United Kingdom so fast allowing the government to present the new tax regime early than expected. Smaller online betting firms also changed location to, or started up in the U.K to capitalize on the new-fangled scheme and the growing e-commerce opportunities in U.K. All these have been attributed to the fact that U.K is reputable as a hub of bookmarking integrity and proficiency. There have been several jobs created as a result of the innovations in the U.K.; this has been in areas such as betting shops along the street and in call centre intended to accommodate the increasing numbers of telephone and online betting marketplace. The innovations have enabled bookmakers to absorb the new gross proceeds tax and eliminate deductions. Due to this, punters were able to place their bets without paying taxes in high betting shops. Illegal cases of bookmaking activities have decline considerably. This has been due to elimination of tax incentives to use unlicensed bookmakers (Hausch and Ziemba 226). The idea to have gross profit bookmakers’ get taxed as endorsed by independent academic research proved to be more efficient economically than subjecting taxation on turnover was to benefit punters, exchequer and bookmakers. Increase of about 35-40% was realized in the industry’s turn over record betting on events such as Football World Cup and Grand National (Hausch and Ziemba 429). Financial support provided by the betting industry towards racing has increased due to the innovation of betting exchanges. The contributions have also been re-channeled to a gross income origin. This period also realized stable stream of positive industry and sovereign academic observations (Hausch and Ziemba 425). According to Hausch and Ziemba (408), betting has been making fair and effective taking part to the common tax revenues collected both in the short and long term. This was after medium term calculations showing in upward trend in the total amount of revenue collected after the tax reforms in the betting industry. Work Cited Hausch, Donald B. and W. T. Ziemba. Handbook of sports and lottery markets. Amsterdam: Elsevier/North-Holland, 2008. Print. Read More