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Trading in betting exchange

The advent of the betting exchange has given rise to new types of gamblers - the trader and arbitrageur. Arbitrageurs (colloquially "arbers") attempt to simultaneously bet on all possible outcomes to make a guaranteed profit. A trader operates similarly to an arbitrageur, but is willing to take on extra risk and bet on events where no immediate profit is possible. A trader hopes to make a profit by closing out the bet at a later stage at more favorable odds. Closing out a bet for profit involves collecting more money by laying than is paid out when the outcome is backed back. If the event does not occur then no money is lost, alternatively if a trader is able to lay a higher stake at shorter odds than his back stake then he can theoretically guarantee the same amount of profit regardless of the outcome. On the other hand, if the odds move against the trader he might be compelled to close out the bet for a loss. Trading can be done either before the start of an event or while the event is in progress if in-play betting is offered, although the latter situation can be much more risky.

Traders can make money by betting exclusively with betting exchanges or bookmakers, or by combining the two. The trader could lay at a low amount on a betting exchange and then back at a higher price with a bookie or another exchange. This must be done simultaneously to guarantee a profit or else the opportunity could quickly cease to exist with liquid markets quickly correcting prices and bookies trying to avoid being arbitraged.

Most exchanges post the book percentages (colloquially known as the overround or "vig") prominently for each market. These percentages are essentially the cumulative implied percentage chances of the odds on offer for each selection and for a single winner market will usually add up to more than 100% for all back selections (but only marginally over in a competitive market), and under 100% for the lay selections. This ensures that simultaneously backing or laying all selections in a market will not normally guarantee a profit. Occasionally though (especially in circumstances where odds are prone to change rapidly) exceptions will arise where offers to back or lay all selections will be made that if simultaneously and cumulatively accepted at exactly the right stakes would permit an arbitrageur to guarantee a profit. However, such phenomena tend to correct themselves very quickly and exchanges generally try to dissuade customers from attempting to take advantage of such circumstances.

Furthermore, for a trader or arbitrageur to combine different exchanges and/or bookmakers for a profit requires a substantial price differential if a profit is in fact to be made once the exchange's commission is taken into account. Even between exchanges, such large price differences are rare, brief and usually involve relatively small stakes. Fortunately for traders, almost all betting exchanges charge commission on net winnings only and charge no commission at all in the event of a net loss. This suits the trader's high turnover, low profit strategy provided he bets exclusively with a single exchange.

The profit or loss for a trader will typically be no more than 10% of the total amount of his combined back and lay stakes, so to make meaningful amounts of money a trader needs to commit a relatively large amount of capital. The trader therefore runs the risk of having a large unwanted bet on an event if he is unable to close his position before the event starts (e.g. if there are technical problems with his Internet connection or with the exchange).

While traditional punters' opinion of traders is decidedly mixed, exchanges have generally welcomed them on account of the vast amounts of capital and liquidity they bring. Traders and arbitrageurs are often credited with "seeding" markets with more competitive prices than would be present without them. However, Betfair's imposition of a premium charge in September 2008 was seen by some as being directed at the most skilled traders, whom it is speculated trade for a loss very infrequently and thus would otherwise pay little in the way of commission. In response, rival exchanges have pledged not to introduce similar charges, perhaps in hopes of enticing traders to move their business (and capital) elsewhere.

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.