Why Are Betfair’s Odds So Efficient?

If you are new to betting exchanges you may wonder how they differ from bookmakers. One of the key factors with Betfair is the efficiency of their odds.

In fact, all betting exchanges of this type are regarded as being highly efficient. But why is that the case? And what does this mean for your chances of making money from them?

Do they have a secret formula that helps them to be efficient? The truth is a lot simpler than that, but it does take a bit of explaining. Betfair gets it odds in a very simple yet clever way. To fully understand how it works we need to start at the beginning.

What Causes the Odds to Move?

It can be exciting –and profitable – to watch the odds on something shift. Sometimes, you might work out the reason behind it. Other times, you may be confused as you try to understand why the odds are moving.

What are the different factors at play here? What is it that drives prices up or down? The truth is that there are a few issues that we need to bear in mind.

Among the reasons for odds moving are things that are impossible to predict. For example, superstition. People often bet for illogical reasons. This sort of betting is confusing when it leads to market changes for no real reason.

Then there is the random choice factor. You are never going to be able to work out what these bets mean, due to their unpredictable nature. It is clear that some people place bets with no real logic. These are the bets that bookies love to see, as they usually lose.

People also bet using the herd mentality. When punters see the odds moving what do they think? Many of them will think that other people know something they don’t. This can lead to them following the crowd without knowing why they are doing it.

Thankfully, there are more predictable factors too. In fact, as more punters become informed and sophisticated, these factors are growing. More people now research online than follow hunches or make random choices.

This brings into play factors such as form study. It is something that is now easier to do than ever before. There are loads of sites where you can find out all the statistics you care to see.

Punters can also react quickly to team news and other new information. If you are online you can find out breaking news as it happens. This allows you to make more informed decisions. Growing market confidence can also be quickly reflected in the odds these days.

It is worth bearing in mind that a lot of people follow tipsters now too. A tip from a popular tipster can lead to a surge of bets being made. The top tipsters have hundreds or thousands of followers reading their suggestions daily. Arbitrage between other bookmakers is another factor to think about.

All of these factors mean that prices shift constantly. The odds can rise or fall a lot before a match or race starts. It is often in the last hour that the odds swing most of all.

This leads us to wonder how odds can be truly efficient. With so many variables to take into account, how do they do it?

Betfair Is a Sharp Bookmaker

Betfair is a sharp bookmaker. What does this really mean? And how does it help to make their odds more efficient?

A sharp bookmaker works to a tight mathematical model. Betfair is a 100% book with no margin (I’ll explain more on this shortly).

They don’t ban winning players meaning astute bettors will bet here. This means that their odds move rapidly according to the changing situation. Any major event that could affect the outcome is taken into account. The odds change quickly, to show the true situation at the current time.

This sets them apart from soft bookies. These are typically slower to react to changes in the market. This inefficiency can be exploited by smart punters looking for value bets. Yet, Betfair odds move quickly. This gives you a smaller window of opportunity.

Another important point is that you can win as much as you are able to. You don’t run the risk of getting banned as you do with other bookies. You can just keep on winning at Betfair without fear of a ban.

What this means is that sharp bookmakers attract more astute players. If you are confident of winning then this is a great place to do it. You can keep on winning without any worries over getting a ban. Which is as it should be, really.

Wisdom of Crowds Theory

There is a theory that bigger crowds make better decisions. The idea is that everyone in the group brings their own knowledge and experience. We can see how this works on websites such as Wikipedia. You may have read about this idea in a book by James Surowiecki too.

Even older techniques such as trial by jury show how this works. One person’s opinion is never perfect, no matter how knowledgeable they are. By combining a number of opinions we can get closer to perfection.

Charles Darwin’s cousin Francis Galton made one of the first reported comments on this subject. At the start of the 20^th century, he viewed a competition to guess the weight of an ox. Galton noted that the average answer in the competition was incredibly precise. The crowd’s collective opinion was more accurate than that of the experts.

Therefore, it is suggested that a big, diverse crowd is even better than a small group of experts. This applies whether you are trying to guess the weight of an ox or the odds for a match. The overall opinion or answer from the group is usually right. It is also usually better than that given by each of the individuals.

How does this work on the Betfair exchange? Quite simply, they pull together the opinions of their users. Thousands of users placing bets in a single market leads to fair odds that accurately reflect the possibility of certain outcomes.

The fact that new users come along with extra information causes the odds to move. This is why the odds are dynamic. Every time new information is added the price shifts to reflect this.

This simple yet highly effective theory is at the heart of the Betfair model. The odds are fair and efficient because of the wisdom of the crowd. There is no team of experts in an office deciding what odds to use.

Betfair 100% Book

The beauty of Betfair is that the book is almost 100%. A 100% book is where all the selections probability of winning are added together. This means that there is no edge built in to the prices.

This doesn’t happen with bookies. They factor in a percentage that is their eventual profit. So, a 105% book will give them a 5% profit if all goes to plan. Provided that people bet as expected, the bookies can’t lose.

This isn’t how Betfair works, though. Close to the off they will have a 100% book which is when the odds are the most efficient. This means that the odds are a truer reflection of the chances of each possible outcome. There is no percentage built in purely as the bookie’s profit. However they do take a commission on winning bets.

Cross Matching

When Betfair first started out, cross matching didn’t exist. It is now a fairly important part of the exchange but what is it? In simple terms, this is a process that rapidly increases liquidity and the amount of money matched.

When you offer a price on one side of the book, Betfair will offer it on the other side to get it matched. A Basic example (I’ve used a football market to make it easy to understand as there are only 3 possible outcomes): –

The match below has no money in the lay market and zero money matched.

When I submitted a £10 back bet on Tanjong Pagar Utd, Betfair offers the bets on the other side of the market.

• £10 lay stake appears for Tanjong Pagar Utd at odds 2.0.
• £10 back stake appeared on Home UTD at odds 2.0.
• £9 back stake appeared on the draw at odds 2.04.

If anybody places one of those bets, my £10 back bet on Tanjong Pagar Utd would be matched.

The cross matching feature increases liquidity & the amount of bets matched in the Betfair exchange. It ensures a balance between prices. When one selection is being heavily backed, it will influence the other selections price causing them to drift. The shorter the price of a selection, the more influential it is when the price moves.

Not everyone was happy with the introduction of cross matching, it has to be said. For a start, it took away a way of making money for some users. In the past, it was possible to run automated programs to identify opportunities. Now, the money that could be won this way is made by Betfair.

However, for most users this is something worthwhile. It is just another element that makes this an efficient and effective betting exchange.

Significance of the Betfair SP Odds

The Betfair Starting Price is worked out when the market is suspended. This is when the match, race or event starts. So this is the final price before the action begins in earnest. The Betfair SP odds are then worked out by balancing all of the bets made on here.

The exact figure comes from matching SP backers against SP layers.

In this way, you get an incredibly accurate starting price. These odds take into account all of the relevant bets that have been made in the build-up. This works out to give a price that is highly efficient. What this tells us is the true value of a bet at the start.

Traditionally, the starting price was built on the average odds from the bookies. Indeed, this was limited to just the bookies at the racecourse. This meant that their 10% profit margin was included in it. So the figure wasn’t really a completely true reflection of the possibilities.

With Betfair, you simply get average odds from the SP bets made by all customers. There is no bookie’s profit to take into account. Because of this, the price is an accurate snapshot at that point in time. It shows you exactly what the possibilities are of each outcome occurring.

We spoke about the wisdom of crowds theory earlier on. Well, the Betfair SP is the collective opinion of everyone involved when betting closes. In theory, it should be the most accurate odds possible. Betfair has looked at all of the SP bets from everyone and calculated the exact odds from that.

Naturally, some punters make beating the starting price their main strategy. If you can get better odds than this then you are on the right track. That doesn’t mean that this is easy to do, though.

If They Are So Efficient Is It Possible to Make Money from Them?

Ok, so far I have looked at how highly efficient Betfair is. The truth is that this exchange is incredibly smart and efficient. Yet, this leads to an obvious question, doesn’t it?

The question is; if Betfair is so efficient how can I make money from them? Surely it is this efficiency that ensures that you can’t win much here? Is it a waste of time looking for ways to make money on the exchange?

However, this isn’t quite true. It is definitely important that you understand this efficiency. And where it comes from too. All of the points covered so far let you see how odds are calculated accurately and efficiently. This is a great starting point for betting on this exchange.

Yet, this alone doesn’t mean that it isn’t worth looking for value. It just means that there are no shortcuts or easy pickings to be had. You need to be efficient too if you are going to get profits from Betfair.

Betting markets are efficient at aggregating a wealth of diverse information into prices. But they don’t do this in zero time. This means that there is still a chance to make money. But you need to be fast as well as smart to do this.

All My Systems Are Built Around Efficiency

As we have seen, Betfair is an incredibly efficient betting market.

So, how do you win money on Betfair? First of all, by understanding how the market works. Everything we have looked at so far helps you to see how Betfair works. So how do you beat it then?

All of my products are built around the efficiency of the market. We use the Betfair odds to predict the % chance of something happening. This allows you to work out the estimated value of your bets. The best example is the Each Way Sniper value system. Using the Betfair place odds, we can identify bookmakers offering value each way odds. It’s the most profitable value betting system I’ve seen!

It sounds simple but it is something that has to be done just right. The margins are tight but achievable. Bet efficiently and you can beat the game just like I do.

Further Reading

To be fair, this is a fairly complicated subject once you delve deeper. Covering betting market efficiency in a single article is a tough task.

If you are interested in the subject then there is a lot of extra information out there for you. For instance, Information Efficiency in Financial and Betting Markets by Leighton Vaughan Williams. This book has a lot of interesting material you might like.

A quick word of warning, though, it’s a study. It is not an easy read to dip in and out of. You will want to take your time when you read it.

Conclusion

It is important that you understand how Betfair works. You can’t just start using this betting exchange thinking that it is like a bookmaker.

A big part of it is the way that it is so efficient. Once you get to grips with this, it is easier to understand how you can make money from bookmakers with inefficient odds.