Cross-Matching

Idiot's guide to Betfair cross-matching and how it might affect your pursuit of the pennies

Byline: Alex Hankin

In the middle of February, without warning, Betfair fundamentally changed the way they matched bets. Did you notice at the time? Me neither, and while the ensuing storm of controversy has been hard to miss, the impact on your experience of using the exchange is likely to remain fairly minimal, in the short term at least.

But betting exchanges are eco-systems. Some specialist users are very unhappy. So what's it all about? As a fully licensed and accredited idiot, I can offer you this idiot's guide.

What have Betfair done?

Introduced cross-matching into their system for handling unmatched bets on sports markets.

What is cross-matching?

Take a tennis match as the most simple example. There are just two possible outcomes, so any back bet on Player A is in effect a lay bet on Player B at the reverse price, e.g. backing A for pounds 10 at 2-1 is the same as laying a bet of pounds 20 on B at 1-2.

Previously, if you wanted your tenner on A but no-one had offered to lay at that 2-1 or better, your bet would be left unmatched. After the February changes, the system would now attempt to cross-match, i.e. resolve your request with any appropriate unmatched back request on B. Betfair said "customer bet requests would stand a greater chance of being matched", and they were right.

What's the problem?

No problem - it's just fine for simple souls who use BF in broadly the same way that they use a bookmaker, i.e. one bet at a time, sweet Jesus.

So who cares?

For traders - include anyone who factors into their strategy the unmatched bets on view - this unheralded change in the system is more problematic.

At its most extreme, if you concern yourself with the pursuit of 'the pennies' - typically chasing under-rounds across whole markets or arbing individual outcomes - it looks like Betfair has just shot your fox.

And BF were upfront about that.

Retrospectively upfront, that is. "The motivation . . . is to reduce the load on the site by making it pointless for customers who use automated tools to bombard the site with traffic looking for arbitrage opportunities 'the pennies'."

What are these 'pennies'?

Risk-free money. Backing every outcome in a 99 per cent book; laying every outcome in a 101 per cent book; buying low, selling high. All that stuff.

The pursuit of these pennies has driven the explosion in trading software, bludgeoning BF's systems with a massive volume of usage that yields relatively little by way of commission.

As far as cross-matching goes, the pennies might appear in our tennis match example if there were unmatched back requests, e.g. player A pounds 1,000 at 2.02 and B pounds 1,500 at 1.98.

Those two prices combined make a 100.01 per cent book - so you could lay them both to appropriate stakes and produce a tiny profit for yourself whichever wins. In this example, there's just over pounds 20 going begging (minus commission).

Who's getting those pennies now?

Betfair - or at least they said they might have "theoretically" got them for a bit. So far, a series of announcements has not done as much as it might to clear this matter up.

Having initially failed to mention that they were cross-matching, Betfair then admitted to now potentially being in a position to trouser any spare money arising.

That didn't go down well, so BF shelved the cross-matching process, for in-play markets at least, while they searched for a way to pass the controversial pennies on to customers through advanced 'best-price' execution in the new system. That is proving a tough technical nut to crack.

Last Thursday, Betfair announced the reintroduction of cross-matching for in-play markets.

They were quick to reassure customers that now "typically" cross-matching would only occur when there was no theoretical arb involved. Unfortunately, they also gave an example of such a no-arb situation: a 2.02/1.98 tennis match (see above).

Does this cross-matching affect horse racing?

No. Not yet anyway, and the non-runner issue looks hard to resolve, although there's always in-running.

I'm a simple backer or layer - am I somehow getting stiffed by new sinister forces beyond my control?

No.

Are Betfair interfering in the market, and is that fair?

You say potato, but they say potato (slightly differently). Betfair have certainly altered the mechanism of the market and hence its behaviour - the rest is complicated.

And what's 'fair' got to do with it?

Betfair aren't some happy-clappy club for punters - they are a fully licensed bookmaker, who define their own terms and conditions under the umbrella of existing legislation, with one objective.

In the end, it's as simple as that, and only an idiot could expect otherwise.