Wednesday, 7 March 2012

Small Fish

Peter Webb again writes an interesting post, which I would have commented on, except for the fact that comments are closed for some reason. The core of the post was this:
On Saturday I was working a position into the Liverpool vs Arsenal match. I’ve often maintained there can’t be many big gamblers / traders out there as I rarely see big amounts in the market. OK there are reasons why I may not be able to see them, but even then, I rarely see anything that looks like a bigger player.

In total my bet was taken by 49 different opposing bets. There was an £800 a £280 but those were the largest bets taken. Most of them were pretty small. 95% were below £100 and 90% below £50, 75% below £25. You have to get to below £10 before the balance tips over 50% . Even if people were trading the the price I was at, it wasn’t with much money it would seem.

From a commercial perspective, much fuss it made about how premium charge payers ‘take out’ money from the ‘exchange ecosystem’ but my bet appears to deeply contradict that statement. My bet cost the same, from an infrastructure perspective, on it’s own as any one of those 49 bets. Therefore I conclude that my business was 49 times more efficient as it only took one transaction to place. As I offered money to be taken, I would classify that as providing liquidity as well. I didn’t nick a few quid off somebody else, beat a clock and nobody was under any obligation to take the counter-side of my bet. I fully exposed myself to the market.

So there you have it, I placed more volume, with less overhead to the exchange than all those 49 other people and created liquidity to boot. Not exactly the sort of customer you would encourage to take there business elsewhere? No, you would think you would want to encourage them into your fold. You get the feeling to put people off doing this would definitely be a strategic error, don’t you?
It has occurred to me in the past, and this post reminded me again, that it's perhaps a little strange that Betfair treat makers and takers in the same way regarding commission and charges. There's certainly a strong argument that making an offer should be encouraged by the exchange, perhaps in the form of lower commission relative to that paid by bet takers. As Peter mentions in his example, it is not unusual for a decent sized bet to be matched by close to 100 smaller bets.

Peter's reference to 'big gamblers' is of course relative, but relative to the financial markets, it is true that there are no big players on the exchanges, but when you are a £2 to £10 player, and there are many of those out there as evidenced by the size of bets matched, anyone putting four figures into the market probably seems a big player.


gundulf said...

Whilst it's hard to argue with the core logic of Peter's point, and not wishing to appear pedantic, getting his bet matched of course involved 50 transactions and therefore 50 round trips to the server(s) assuming the bet was placed and stayed at one price whilst being matched.

It does seem to me that liquidity in the football markets is much depleted from the levels apparent a couple of years ago. I'm sure the SPC is one, if not the main, reason for this.

Obviously Betfair need to cover their costs and make a profit but I can't help but conclude that charging their most successful customers a rate higher of commission than the top rate of income tax is probably not the best way of doing so.

jokerjoe said...

Peter doesn't allowed comments presumably because he's afraid of any negative views. Not that his blog contains much of any value, mere endless plugs for his product.

Interestingly enough Betdaq apparently now increase or decrease your fees when using the API depending on whether you're a liquidity taker or giver. Excellent idea and I wish them all the best.

Peter Webb said...

Not true joe, people are free to post on our forum or twitter. I just don't have enough time to enter into endless dialogue with people over endless mediums so I choose to try and channel it.

I post a lot on the blog predominately about trading but you have to expect the odd plug for the product. It's been my life for 12 years!

gundulf said...

It would be a bit unrealistic to read a blog entitled 'Bet Angel Blog' and not to expect the product to be plugged.

I enjoy the blog, as one of the 'small' players as it gives a take from the perspective of someone playing with a lot more money than I do, and is insightful in ways I wouldn't have thought about, in much the same way as Green All Over does.