Monday, 8 February 2010

Four Trading Strategies

There are probably a hundred different, already implemented, trading strategies on Betfair. Someone will have - I'm sure - hooked the Fink Tank football predictor up to Betfair. Some of these will be fiendishly complex, others will simple. Some will make money for a short while, others will remain profitable for a long time, many will never consistently make money.

All trading systems will fall into one of four broad categories:

Algorithms that are better at calculating probabilities than most gamblers. I know of one system that trades only cricket matches, and it relies on the fact that many people over-react when a wicket goes down. Apparently, one wicket falling has less impact than many gamblers expect (in the short run, they over-estimate its importance). By immediately buying the side who has lost the wicket, assuming the odds have swung enough, the system has had significantly positive returns over the last several years. Another - also cricket related - system was based on the fact that people significantly over-estimate the probability of draws. For a long-while this was also pretty profitable - until other gamblers noted that Betfair odds were out of line with history. Each of these systems is based upon a better ability to calculate true odds than most punters.

Arbitrage related algorithms. The system described in this post, was an arbitrage related one. Arbitrage - executed correctly - is riskless profits. The principle is always roughly the same: there will be multiple markets or selections whose results are highly correlated in one way or another - and whose prices should move in lock-step. To take a political example, the Betfair markets on the individual seats should match up pretty accurately to the party seats line (a 50/50 bet on the number of seats individual parties will achieve). Frequently it does not. During the US Primaries, Hillary Clinton was still the favourite, even when the state betting was strongly favouring Barack Obama. There was arbitrage opportunity backing Hillary in the individual States, and backing Barack to be nominee. Some arbitrage happens between Betfair and Betdaq, and/or the spreadbetting firms and/or traditional bookmakers. For example, bookmakers typically give each-way odds based on a simple 1/4 formula. It used to be possible to look for races with strong favourites, back the second or third horses each way with bookmakers, and then sell the win portion of the bet on Betfair. This was enormously profitable - until the bookmakers realised their mistakes.

Flow of Funds Systems. This is what people tend to think of when they think of financial algorithmic trading; it is systems that are plugged into price feeds, monitoring movements, and detecting where prices are going to go. Flow of funds trading is unique because it requires limited information about the underlying market: you don't need to be a horse racing expert, just a maths whizz. The simplest flow of funds trading system will be the one we implement on here first: a simple market making system. Market making involves providing liquidity to a market: i.e., being prepared to take other peoples' bets. In return for this, prices you put into the system include an over-round (that is, the raw implied probabilities add up to more than 100%). If you are able to correctly judge the market so that you get roughly similar numbers of people backing each of the runners, then you will profit.

Informational Advantage Systems. "The most valuable commodity," said Gordon Gecko to Bud Fox, "is information". The first person to see that a cricket wicket has fallen, or a goal scored, is able to adjust prices that bit quicker. (To encourage market making, Betfair has a 5 second delay on bet placing - but this still gives opportunities when a foolish cricket market maker goes on a bathroom break at just the wrong moment.) Given limited resources, it will be extremely hard for you or I to know things other people do not: however, it is possible we will be able to react quicker if we leave the trading in the hands of a 'bot. There are a number of Python Bayesian analysis tools that might be useful to automatically divine of a piece of information is likely to move a market... before human traders can react.

Now, I have never written a bot based around types one or two (although I have made money with manual trading of this type.) I currently run a reasonably successful marketmaking bot that prices up perhaps 20-30 markets, and makes c. £300-400/month. (One of the impetuses behind this blog was that if I wrote about it, I might get around to improving it!) I am very keen to deploy a system based on informational advantage - and after we cover building a market making 'bot, I think we'll go straight onto Bayesian analysis.

So: until next time...


  1. Hi, nice blogspot. How the HECK do I contact the writer of this blog??

    I've looked at several bots out there and they cannot ful-fill what I require. I'm looking for an ace programmer to work with me on a personal basis to create 2 bots that I've written out. I cannot do programming but have won a lot of money from an initial stake of £10 on the betting exchanges and have been on premium charges shortly after it was introduced.

    The bots will be very effective, legal and will profit every day; half manually at first, (which I will do solely), but becoming fully auto when completed. Because of the nature of my work I wouldn't be prepared to send the information willy-nilly over the internet as you will appreciate.

    I'm wondering if there's anyone at your office or a contact that would like to work this with me and who have the enthusiasm and a little time to spare.

    My 1st bot has 12 rules, but, the 1st rule (if made), can enable me to show it profiting straight away!! Every single day, some days average, some days fantastic, never losing on any day. It is not a 'scalping' bot and no matter which way the markets move is irrelevant.

    I hope you can suggest someone that is trustworthy and to work with me.

    Thank You

    Steve H

    1. Hi Steve,

      If your project is still available, we can help you !
      We are a team of software engineers, specialized in sports betting.

      You can contact us via our website :



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