Sports betting has been one of the most common pastimes of the
public in the UK for hundreds of years, whereas sports trading has
only really been made possible since the launch of the betting
exchanges.
The betting exchanges changed the way the retail punter could
approach a horse race, team match or head to head competition.
Previously bookmakers would set odds about an event and their
clients would make a bet about the event happening. When the
betting exchanges launched a new way to bet emerged enabling the
betting community to act as bookmakers and set their own odds for
others to bet on. The development of the betting exchanges
coincided with a dramatic increase in the amount of live sport
being shown across terrestrial and satellite television which meant
that huge numbers of clients could become armchair bookmakers,
backing and laying prices throughout the event.
The largest of the betting exchanges is Betfair, a publicly
quoted company on the London Stock Exchange and one that employs
hundreds of people in the UK and overseas. The betting exchanges
make their money from commission that is paid by clients who have
winning bets with the rates of commission varying depending on the
volumes of bets you place.
Betting exchanges are no different from financial exchanges;
they need liquidity to be successful. Without liquidity they will
not attract the required number of clients to be a commercial
success and so much of the money spent by Betfair is on marketing
aimed at trying to attract new customers who will be prepared not
only to back their selections but also to lay others in the same
event, thus increasing the amount of liquidity available for other
clients.
Betfair has recently introduced a premium charge which is levied
on the more successful clients. This charge is paid when winnings
over a certain period exceed a limit set by the exchange. Basically
the exchange is saying' we've created this amazing place for you to
win money off of lesser experienced gamblers, therefore you'll have
to pay to help us continue to attract new clients so that we can
continue to show high levels of liquidity'. The charge has not been
well received by the professional gambling community with some
looking to move their business away to the other exchanges, Betdaq
and WBX.
Betdaq is an Irish based company owned by the property
millionaire Dermot Desmond. The challenge for any exchange in
competition with a market leader is to show clients that they too
have good levels of liquidity and that they can feel assured that
they will be able to place bets at attractive prices throughout the
event. There is little point showing clients good, tight prices at
the start of an event only for them to become wide and only
available in small amounts once the event has started. Traders in
financial markets look to maximise returns in times of volatility
and so require good solid prices during these times; a sports
trader is no different and when points or goals are being scored
they require a constant flow of prices and volume to enable them to
make their trading as profitable as possible. Betdaq is working
hard to improve their liquidity levels and is winning new clients
who are looking for better commercial terms and who believe that
the premium charge levied by Betfair will prove to be a
disadvantage in the medium to long term.
Both Betfair and Betdaq have been keen to embrace automated
trading systems where individuals and other bookmakers are
connecting to the betting exchanges using API's and are submitting
high numbers of bets during in running events in an attempt to make
small margins across large numbers of wagers. It is likely that
this method of trading will increase and as pressure mounts on
servers at the exchanges to cope with the increased numbers of
prices and bets it can be expected that the costs of trading in
this way could rise.