#51: Betfair Trading

SAM: Hello and welcome back to another episode of the lazy entrepreneur podcast, we are your hosts, Sam and Emma Priestley.

EMMA: Hello.

SAM: Emma do you know what the most popular podcasts we’ve done are the two most popular podcasts.

EMMA: Well based on our conversation last night, you said the budgeting one was very popular because of all the comments, but I don’t know how many listeners that’s had, so no.

SAM: Yeah, that one is quite new. Maybe that would be popular in a bit. But of all the 50 we’ve done, the two most popular ones have been the one about professional gambling and the one about value betting.

EMMA: Yes so just like your blog.

SAM: That used to be the most popular then Amazon FBA overtook it. That’s what we thought. Because of that, I thought we should do another one on gambling.

EMMA: Lucky me.

SAM: Emma isn’t as interested in professional gambling as I am.

EMMA: What was the comment that someone made after we did the value betting podcast?

SAM: Oh they said something like, props to your wife for sitting through all that.

EMMA: Yeah because my wife definitely wouldn’t.

SAM: Yeah yeah, but that’s alright. Emma is attracted to me because I’m nerdy.

EMMA: Aha.

SAM: Let’s get nerdy about trading on Betfair. Do you know what betfair is?

EMMA: It’s a gambling website.

SAM: Yeah.

EMMA: I would have no idea what the term is, it’s not a casino.

SAM: Or a sports book, it’s a marketplace.

EMMA: Marketplace, I wouldn’t know that it’s called that.

SAM: It’s also called a betting exchange which works similar to a stock market but instead of buying and selling companies, you’re buying and selling the probabilities of an event happening. So what does that mean? That means that instead of going to a normal bookie and betting that a horse is gonna win, you can go to a betting exchange and you can buy and sell those bets with other people. Yes so just like on a stock exchange where you might be buying and selling companies, you have this bidder spread where people are offering to sell the probability an event at a certain price and other people are looking to buy it at a price, and this spread moves and then when people agree on a price a trade happens.

EMMA: So how does Betfair make its money.

SAM: So Betfair takes a commission based on the winner of the event.

EMMA: And is that percentage set.

SAM: Yeah so they take on average 5% of the winning amount, the more you bet the lower that amount gets. Because it’s a marketplace it means that you can trade on both ways.

EMMA: Yeah.

SAM: So we’re gonna talk about horse racing for the sake of this article, this podcast, so on a horse race if I bought the odds of one horse winning at a certain amount and then the odds changed, the market moved, I could then potentially sell out that same bet and lock in a profit before the event happened.

EMMA: Okay.

SAM: So with betfair trading, what you can do before the race starts, you can buy and sell hundreds of times, the same event, watching the market move up and down, and each time looking in a little profit or loss. So trading out of your position. Similar to how you do on the stock market. Lets say you bought some whatever IBM at a hundred pounds and then it went up to a hundred ten and you sold your one IBM, you would have made ten pounds profit.

EMMA: Yes.

SAM: It’s exactly same with that with horse-racing, so you can do all this trading before the event happens, then when the event happens the horse goes on and wins or loses or whatever but you’re okay because you’ve traded out and so what I thought once upon a time and I still do was that betfair is pretty much exactly the same stock market and there have been professionals making money on the stock market forever basically for a hundred years. But on the stock market everybody is a professional and it’s quite developed and there’s a lot of money there whereas on the betting markets, it’s mainly amateurs, people just going off and punting their bets, so I thought, could I take some of those techniques that we used in like the 80s on the stock market and apply them to the betting markets and hopefully make a bunch of money. Before we start I’d like to say that betfair trading is is one type of professional gambling that has always eluded me and I’m still hoping that one day it will sort of work out. So I’m just gonna tell you the story of my experiences trying to make a living being a betfair trader.

EMMA: You should all see the smile on Sam’s face while he’s getting ready to tell you this story.

SAM: You should see the non smile on Emma’s face. So I’ve always thought this for a while, that there’s some way you can make money out of this system and then in July 2009 so a little over 10 years ago, one of the professional gambling forums I was on had a competition and it was a month-long competition and everyone started with the same amount money and it was who could turn that money into the most amount over a month of trading on Betfair.

EMMA: Yeah.

SAM: So I thought this is the time for me to give this a go full time. So I thought for one month I’m going to be a betfair trader full-time, I’m gonna get all the training software, I’m gonna set up my computers with loads of different screens, all with different charts and stats on it and these ladder graphs and I’m gonna sit there all day betting on every horse race.

EMMA: So hang on, at this point had you done any professional gambling.

SAM: Yeah by this point I was already making decent money from gambling.

EMMA: On betfair.

SAM: I was doing the matched betting and arbitrage which you can hear about in the other podcast or on the blog post.

EMMA: So what I am saying is you weren’t completely new.

SAM: I wasn’t completely new, I had already been doing it a couple years and was quite successful, but this I had always felt was the dream. If you can make money on this, this is where the big money would be. I thought it looked really glamorous, have you ever watched something like Wall Street where they’re sitting there and they got all the screens on there and they’re placing their bets and they’re in this beautiful penthouse duplex apartment there is a half naked girl on the bed behind them and he’s there doing his trading on the stock market.

EMMA: No, that’s not real life.

SAM: No well that’s what I was hoping as I sat down at mine with my multiple screens and started trading. So I opened up a horse race maybe ten minutes before the race started and just tried to trade the volatility as it moved, there’s a bunch of things that I looked for so you can see trends that were happening, so you can see the odds start to change, you could try and chase the change to make money out of that. You could do a bit of market making so there’s a spread between the buy and sell prices. You could go in the middle and hopefully trade on both sides of that. Might get a bit of profit. You can follow the weight of money so you can look to see if there’s someone trying to place a really big bet but doing it bit by bit, because if someone places a lot of money it moves the market so you can look for that, you can try and manipulate the market yourself by moving it up and down and hoping to trade off people’s sort of psychology and see how they react.

EMMA: So are these all assumptions that you had before you went into this month or will they be some of the things that came out of doing this month?

SAM: A bit of both. I did a bunch of research, there isn’t really that much information about it, I bought a few books about stock market, didn’t really learn anything useful. And I sat there for hours every day, I started off because we only had a 50 pound float, so I started off with just two pound bets, I’ll pick my two pound bet, hopefully the market would change a little bit then I’d trade out my two pound bet and if I was successful, I’d make something like 3p.

EMMA: Wow.

SAM: And if I wasn’t successful, I’d lose something like 3p, 5p. So I did this day in and day out for 30 days.

EMMA: I’m impressed you got through it.

SAM: And I won, I won the competition. I basically tripled my money. In the first two weeks, I was pretty much, I lost money and then I got back to break even. And then for the final two weeks I made a consistent profit and for the last, so I had to look at my my history just now and for the last sixty races I traded, I only had three losing one’s, an average of 50P profit per race.

EMMA: Congratulations.

SAM: Thank you very much.

EMMA: One of your proudest achievements.

SAM: Finished a month, here I was ready to make it in the big time as a betfair trader and that’s it and that’s the peak of my bet fair trading success in July 2009. Basically, it’s just so boring. You’re making 50 P for half an hour work.

EMMA: It’s not very sexy is it.

SAM: And the emotional roller coasters you go through as the things are moving away from you, going up and down. So after I finished it, I thought, my first was let’s try and scale it up and place the bigger bets, but I was already kind of bored of it by this point, so I thought let’s try and automate it. And for maybe the next five years, five or eight years I spent quite a lot of time on the optimization. Once the company got a bit bigger, we hired a PhD who worked on it for six months, we hired another couple of people to build a better model of it, I did it did a few courses on data mining and big data and how to find information and stuff. Did a few AI things to try and automate all this trading. I spent quite a lot of money and built a big testing software so basically collected split second it split second data from horse racing on Betfair for a couple of years so you could run automated tests to see what would happen if you recreate your strategy over a year period, so you create a little AI that would go off and place bets for you and then that would run for a year.

EMMA: Is that successful.

SAM: Well we built the software, if that’s what you mean.

EMMA: Did you use it.

SAM: Yeah, but the problem is you can’t backtest the effect that your money has on the market. So let’s say I place one hundred pound bet on the market. Me placing that bet will change the market.

EMMA: Yeah yeah okay.

SAM: So I can back test this software.

EMMA: You can’t just base it on what happened previously.

SAM: We can make assumptions in the software like me placing this bet it will get filled, but maybe it won’t get filled and honestly we never, like each time we start a project, we’d get 3/4 way through and and then give up. We never really finished any projects.

EMMA: Why, why, because you were bored?

SAM: We were doing lots of things at the same time, so it would often be because something else came up, so we would be trying all sorts of different ways to make money gambling professionally. And one thing would take off and so we kind of drop everything and focus on that. And the trading on Betfair never really, never really took off. And so maybe a year ago, I started looking into it all again, I quit the business, this professional gaming business I ran a few years ago now, but because this trading on Betfair has always eluded me, and because like if you get some software algorithmically trading on betfair for you that’s just like printing money, how cool that is, having a bit of software that runs around making money for you, that was a dream and that still is something in my mind and so betfair is a betting exchange, there’s not a betting exchange that opened up called smarkets, and they now make their money from prop trading their own market. So you don’t make any money from the commissions, from the bets, they lose money. Where they make money is they’ve got a team in-house who just trade on betfair or trade on their own market and that’s where their money comes from.

EMMA: That’s mental.

SAM: I think that’s quite cool. It’s a bit cheeky.

EMMA: Yeah really cheeky. And they’re public about that.

SAM: I don’t know if they’re public about that. At one point we used to go head-to-head with because we basically when they started their traders were absolute garbage and so we found some ways to..

EMMA: Identify them.

SAM: And yeah and then make money off them.

EMMA: Yeah cuz they’re rubbish.

SAM: And then after that we got a few, cuz we need we knew everyone, we knew the CEO of smarkets and he contacted us and said, guys please could you stop this.

EMMA: Did he try to recruit you?

SAM: Actually he did. We did a proposal for them to market make on smarkets. And what we wanted was we wanted them to pay us a percentage of the turnover we did. And they kind of agreed but we couldn’t get there on what percent we wanted.

EMMA: Wow.

SAM: Yeah so I’m still kind of looking into it now. Every now and again, problem is it needs a decent amount of time to just sit there, for a month or two, and just go really deep into it all again. And everytime I took it up, I spent a few days on it, and was just like I’ll come back to it later.

EMMA: That’s not you at all.

SAM: One day I am going to work this out. Let’s have a look at my laptop screen now, I wonder if I still do. It might have a load of bots on here, load of algorithms, it always used to. I remember sitting on my computer for five years was a book called the ball and chain bot, which was one of my algorithms.

EMMA: What a terrible name.

EMMA: I thought it was quite a good name because it was a simple concept and the idea was that Betfair is the main exchange and there’s a few other bet exchanges out there and all the other exchanges are going to mimic what happens on betfair because if they don’t there will arbitrage opportunities in between them. So I called it ball and chain, so where betfair goes everyone else has to follow. So it’s a chain because it’s not immediate. It will only start moving once the difference gets big enough for there to be an arbitrage. So my thought is we could pick up where the arbitrage is going to happen before it does with this ball and chain bot. But probably just wasn’t complex enough. So I had loads of these things I was working on, never really got into them. So why are we talking about this on this podcast. One of the reasons is I would be interested to know if any of the listeners have done, made it from trading on betfair because I did on one. There was one reader of the blog who contacted me and came to visit us in Tunbridge Wells. We basically started professional gambling at the same time and when I went into arbitrage value betting, he found opportunities in trading on Betfair and went that route and so he was telling me some of the strategies that worked for him that don’t work anymore but they worked a few years ago.

EMMA: Yes and now they make good adverts.

SAM: And this is interesting and it it makes you think, because like we found one opportunity that he didn’t find which took us in one direction. He found an opportunity I didn’t find which took him in another direction and he’s still kind of doing it full time now and slowly retiring basically.

EMMA: So today’s how like open the opportunity is, it’s not like there’s this one perfect solution you’ve got to work really hard to find.

SAM: No it’s all about finding a little niche that no one else has found and making the most of it.

EMMA: Yeah yeah just because you find something this year doesn’t mean Betfair doesn’t close it.

SAM: And it’s also worth saying that the stuff I made from trying to trade on betfair, I was able to use on other marketplaces. So

EMMA: What do you mean by other marketplaces. Within gambling?

SAM: No, not within gambling. So for instance, funding circle is a peer to peer lending company, and they have an exchange on there where you can sell your loans. So the idea is you go on there and people say they want a loan for their business, and then loads of people will plays it no and it’s also worth saying no the stuff I learned from trying to trade on Betfair I was able to use on other marketplaces yeah so what do you mean by other marketplaces so for instance in gambling no northing gambling so for instance funding circle is a peer-to-peer lending company and they have an exchange on their well where you can sell your loans so the idea is you go on there and you people say I want to loan my business and then loads of people will lend a little bit of money for business and they’ll lend it for a percent, so it might be twelve and a half percent. There’s a secondary market where people who own little bits of loans of different companies can go sell those loans, so they might say well I got it for twelve and a half percent. I’ll sell it at like a 1 percent premiums to make a bit of money because the markets changed.

EMMA: Yes.

SAM: That’s how I built software which would trade on that and would look for, it was really simple, all it did was look to what the average price the loans were selling for and then if someone put a loan up for sale for too cheap, I would buy it.

EMMA: Yep.

SAM: So I did that for a while, had a business software that just ran around doing that for six months or so, and that worked quite well. So there’s a few examples of that, I think one area where I should have gone into but didn’t was in auto cryptocurrency trading because there are so many opportunities there but it just never particularly interested me. Anywhere there is an exchange, there are these opportunities. In some respects, it’s kind of what people are doing the retail arbitrage on Amazon.

EMMA: That’s what I was just thinking.

SAM: It’s another marketplace but it’s just buying and selling.

EMMA: It’s all about price.

SAM: So one thing people do on eBay is they have a bot that goes and finds stuff on Amazon that is sold for more expensive on eBay. And just copies the listing across, hosts it automatically, then if someone buys it on eBay, it just automatically puts the order through on Amazon. So that’s all automated and they’ll have thousands of listings, just, it’s the same sort of thing is finding the little arbitrage trading opportunities, learning about the way that markets work, taking advantage of the way people react to certain situations. So yeah so that was one reason, if you have any experience, I’d be really interested in hearing from any readers or listeners. You can message me at hello @ Sam Priestley dot com. That’s hello @ Sam Priestley dot com and I’ll put a link in the show notes as well. And secondly as I said, people seem to like the podcast we do on professional gambling, so let’s do another one. Something I haven’t really talked about before. Was that as boring as you thought it was going to be.

EMMA: No, it was a bit better, a bit easier to follow than the value betting one.

SAM: Okay, maybe this should be a regular thing. Stories from professional gambling days. Because I got a lot of them.

EMMA: Well you do love telling them.

SAM: I don’t think I’ve told you most of them.

EMMA: No.

SAM: I once did a talk at a matched betting conference, I wish I’d recorded, I was so in my element, there’s so many silly stories.

EMMA: Was the crowd loving it?

SAM: They absolutely loved it.

EMMA: You never told me that, that you did a talk.

SAM: It was a bit weird because, the guy messaged me, like I knew him from back in the day in one of these forums and he messaged me, come along. Wasn’t doing anything better at the time so I went along to it. But, the problem was is that everyone else doing a talk was doing it to sell something.

EMMA: Whereas you were because you just wanted to tell some silly stories. So of course you went down quite well.

SAM: And then, he asked me again a year later to come back and I think I said I’ll do it for a fee, 5,000 pounds.

EMMA: So ridiculous he’s never going to pay.

SAM: And he said no thank you. Well if you like that, let me know as well if you think you could hear some stories. I really like talking to people who have done stuff like that because it is always so weird.

EMMA: It’s very niche.

SAM: You hear about opportunities you just don’t know existed, and it doesn’t need to be about gambling, like I was talking to someone the other day who came down to me in Tunbridge Wells from reading the blog and he was telling me that he worked for a company where what they would do is they would create those slideshows where it would be top 10 celebrity bums or something. Or something and there’d be those slideshows and they go on and you’d click through, so they would make hundreds of those a day, spam facebook advertising with them, advertising on the website and they knew it if you got to like number four on the slide show, they’d be making money from you advertising versus what they were spending, so it was just an arbitrage. They were paying advertising to get people on the website knowing they’d earn a bit more from advertising themselves.

EMMA: Wow.

SAM: And they just found this little niche, grew it to a multi multi-million pound business in a couple years, yeah, so if anyone’s got any stories like that, tell me more. Cool. Anything to add?

EMMA: No, no.

SAM: You got any experiences on betfair trading?

EMMA: No, I have not.

SAM: On that note, thanks for listening and goodbye.