Comfort Level

Average Guy asks:

Hello again, constant reference to appropriate stake size both here and on other blogs. Do you have a hard rule whereby it's a simple % of bank or is it related to %bank and the odds ? Is there a comfort level of exposure that should not be exceeded (obviously varies from trader to trader) or do you allow your stake / exposure to be affected by your own perception of the likelihood of the outcome ?

Appropriate stake size may not be as important as value, but it is very important.

In simple terms, the bigger your edge, the greater the percentage of your bank that you should be staking. 2.5% is probably a reasonable maximum to stake, although I can't honestly say that I adhere to that percentage myself. With a decent sized bank, achieved for the most part through in-play trading, 2.5% is an amount that I consider too high for a pure punt.

In-play trading is another matter altogether. For one thing, as has been discussed recently, the 'stake' is the maximum amount that I am prepared to lose, and while it does happen that I lose the lot on occasion, it's rare. Losses are usually far less than the maximum amount put out there.

The second thing is that in-play value can be huge. Not in sports like football (proper) perhaps, but look at a sport like the American version as an example - a sport where an interception returned for a seemingly game-winning touchdown can be overruled seconds later. Turned over 1.01s are not that rare and if you can lay at a price with a high degree of confidence that the price will soon be significantly higher, and if the worse comes to the worse you can exit with a small loss, then it would be pretty silly, in my opinion, to limit yourself to 2.5% of your bank. I've written before how one of the safest methods there is, is to lay the team scoring the opening touchdown in a game. The price always goes too low, and each £1,000 layed will make you £10 a point when the market corrects, and you can lay several thousand for little risk at these times.

To answer the second part of the comment, yes there definitely is a comfort level and my subconscious often recognises this before my conscious. I know I have exceeded the comfort level when I feel uncomfortable! Simply put, £5,000 at risk might be comfortable or uncomfortable. It's not the amount - it's the situation, and my perception of value.