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Profit SP and Betting Exchange Odds

This morning,  I looked at the horse race laying systems currently being proofed with Racing Index.  For those unaware, Racing Index are an independent organisation that proof betting systems.

I found that only approximately 55% of the systems, currently being proofed, are profitable at SP.

If one takes into account the 5% commission levied on winning bets by the betting exchanges and the fact that the odds on betting exchanges are approximately 20% greater than SP across odds range, only approximately 15% of the systems are profitable.

Note that these figures are based upon the staking plan devised by Racing Index, not the staking plans associated with the individual systems.

In order that systems can be made (more) profitable, one, or both, of two things must be improved upon: either the strike rate must be increased and/or the odds of the selections must be reduced.

It is assumed that, although a system’s strike may fluctuate from time to time, over the long-term, it remains fairly constant.  In addition, if the system has been purchased from a third party, the buyer has no control over the selection process and therefore has no means by which the system’s strike rate can be improved upon.  Therefore, there is nothing that can be achieved in this area.

The only improvement available to us is therefore to reduce the odds of the selections.  But how might this be achieved?

The answer is to partially arbitrage a lay bet.

This is achieved as follows:

Let’s suppose that the Betfair screen, for a given selection, 15 minutes before the start of the race, looks like this:

Back (Blue)  10.0    10.5    11.0          Lay (Pink)  11.5    12.0     12.5

Some people may simply lay the selection to lose at odds of 11.5 (the lowest available odds at which a lay bet may be placed immediately).  But, let’s suppose that we take a different tack.

Let’s suppose that we implement a laying strategy which I call ‘Mid-price Arbitraging’.
In this strategy, a lay bet is placed, not at the lowest available lay odds of 11.5, but at the mid-back price of 10.5.  The stake used is 3 units.

Initially, the bet will not be matched and the bet will remain in an unmatched state. However, in a dynamic market, there is a good possibility that the bet will be matched before the start of the race.

When the bet is matched, the Betfair screen will look something like this:
Back (Blue)  9.5    10.0    10.5          Lay (Pink)  11.0    11.5     12.0

Following the bet being matched, the selection should then be backed to win, not at the highest available back odds of 10.5, but at the mid-lay price of 11.5.  The stake used is 2 units.

Initially, the bet will not be matched and the bet will remain in an unmatched state. However, in a dynamic market, there is a good possibility that the bet will be matched before the start of the race.

What is the point of this and what will be achieved if the two bets are both matched?

When the first lay bet is matched:

Win amount: 3 units.
Liability: 3 x (10.5 – 1) = 28.5 units.

When the second back bet is matched:

Win amount: 2 x (11.5 – 1) = 21 units.
Liability: 2 units.

The net effect of placing the two bets is:

Win amount: 3 – 2 = 1 unit.
Liability: 28.5 – 21 = 7.5 units.

By laying a selection to lose for 3 units at odds of 10.5 and then backing the selection to win for 2 units at odds of 11.5, we have, in effect, layed a selection to lose at odds of 8.5 which was trading at 11.5.  In effect, a selection has been layed to lose at odds much less than those at which they were trading on the betting exchange.  As such, the selection was layed at odds which are probably less than SP.

Reducing the odds in this manner can make all the difference to the profitability of a system.  In fact, if achieved, it is possible to turn a loss-making system into a profit-making one.

The news is not all good, however, since there is a down-side to this strategy:

When the initial lay bet is placed, the odds of the selection may begin to increase and may not ever decrease.  In this case, the lay bet will remain in an unmatched state.  In such situations, there are three options available:

– Ignore the selection and not lay it.
– Lay the selection at the best available odds prior to the start of the race.
– Lay the selection during running.

After the initial lay bet has been matched, the odds of the selection continue to fall such that a back bet cannot be placed at odds which are higher than those associated with the lay bet.  In such situations, again there are three options available:

– Not to back the selection.
– Back the selection at the best available odds prior to the start of the race.
– Back the selection during running at the best available odds.

Although the strategy results in a lower liability, provided that both the bets are matched, the profit is also lower due to the placing of the back bet.

This strategy can be applied to almost any sport where lay and back betting is catered for.  However, where in-running betting is not catered for, (e.g. Greyhounds), then additional care must be taken since the back bet must be matched before the start of the event.
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