Saturday, 27 April 2013

Shady Business

It has been mentioned on here before, but it is interesting how involvement in financial markets is generally admired and respected whereas a similar involvement in sports trading is generally treated with disdain. One factor is that financial markets have the advantage of longevity which begets respect - the London Stock Exchange dates back to about 1698.

Betfair, the first betting exchange, dates all the way back to 2000, and much has been written recently (regarding the move from exchange to sports-book) on how the trading concept remains beyond the comprehension of many.

Betfair could help themselves in this area in my opinion, for example by having just one price on binary markets. With a Back of Team A exactly the same as a Lay of Team B, why confuse people by offering an unnecessary choice? It might be hard for those of us who are familiar with the exchange to comprehend what is so difficult about the concept of backing and laying, but choice overload (overchoice) doesn't help, and offering just one price would make it easier for Betfair, and others, to present their product in a more readily understood stock market format.

The inspiration for this post came from Peter Webb's comment yesterday that betting markets are generally held in low-esteem because the public keep hearing stories about people getting ripped off in gambling markets.

Now it's true that people are ripped off in the financial markets too - insider-trading, Ponzi schemes, hidden fees etc. - but gambling markets have their cheats not only in the sports themselves (drugs, match-fixing), but also, as Peter puts it, people 'exploiting the gullible'. This weeks's example is someone using sports markets to (allegedly) defraud family friends out of huge sums of money for example.  Peter writes:
You also have the current issue that people who have never traded successfully are positioning themselves as experts or people are seeking to exploit the trading opportunity, rather than getting on and doing it, that isn’t helping matters.
It doesn't take too long to find people with absolutely no track record offering their tips for sale. Ian Erskine is hot on this issue too, but on the question of people seeking additional funds to invest for others, Peter continues that: has to be said, it’s fairly obvious that if you are producing stellar returns on something, you just reinvest the money yourself. No need to seek outside involvement. I know that, because that is exactly what I and many others have done. I’ve never met a serious participant in the market who wouldn’t do the same.
Exactly. Peter then shows a chart showing his 'equity curve' for the 116 days this year - check out his post here for the full details -  and suggests:
From it you can see that I am unable to compounding all my earnings, else the graph would be exponential. The fact is, even if you have a decent track record it’s impossible to put that extra money to use because your ‘system’ will collapse under the weight of your stakes. You become the market! The upshot of this is that sports markets are just not scalable enough to warrant raising funds to deploy in them. Fire up a spreadsheet and you will learn quickly that compounding small amounts rapidly at pretty much any positive percentage will mean it isn’t long before your average stake dwarfs what is sensibly available in the market.
Others may disagree, or rather misunderstand, the scalability issue because just a few weeks ago, a generally well-respected blogger wrote:
I've heard it said that the sports markets are not scalable, which is rubbish. I've already scaled up from £2 bets to £200 bets and the markets will be able to take far more than that before I even get close to finding it tough to get matched.
What is rubbish was that comment. Scaling up from £2 to £200 is one thing, but try scaling up from £200 to £20,000. You can always get a top price for your £2, but not may markets allow you to get 10,000 times that amount on in-play, and in many sports, you'd struggle to get a fraction of that £20,000 matched, yet in financial markets, that kind of sum is a drop in he ocean. I wrote on 22 Feb that:
If you have an edge, use it for yourself, build up your bank, and your balance will at some point grow to more than you need for day-to-day trading.
As Peter says, there's absolutely no need to seek outside investment if you have an edge, and anyone doing their due diligence and researching such an invitation for 'investment' would realise this very quickly. The problem is that so many people are gullible and easily fooled by appearances and the prospect of easy money. A promised monthly dividend of £70,000 from an investment of £400,000 is just not realistic - even without the Premium Charge!

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