I have often compared Betfair trading with online stock trading in my blogs and discussed about the common characteristics the two financial markets share. Until now though, I hadn’t summarized those similarities into one post. I think Betfair traders would find it useful to know that moving from Betfair to stock trading isn’t that hard and at the same time stock traders would learn why articles about Betfair trading are included in a financial blog like Trading Graphs! If you forget the traded financial instrument for a moment, you’ll immediately notice how a stock exchange isn’t so different than a betting exchange!
The market’s interface
A stock exchange lists all available securities to be traded. While you have certainly heard of stocks, you may have missed other securities that you can trade in a stock market like bonds, commodities or currencies. The betting exchange at the same time also features all the available sports events that you can trade but also some non-sports markets, like UK’s FTSE100, politics or music contests! Both exchanges include so many available trading options, that the most difficult task is to find the next hot traded instrument, or in other words where the volatility and liquidity is!
Volatility and Liquidity
In order to make money trading online, prices need to move up or down. Prices fluctuate due to the supply and demand law. If demand for a promising company’s stock is high, the shares’ price will rise. If there are a lot of sellers, prices will drop. The same applies to Betfair trading. If no one bets on a football team, the fixed odds for winning the next game will drift. If news, stats or rumors favor the team’s win, people will be placing bets all day causing the odds to shorten. Depending on the news and other facts that influence a stock price or fixed odds, prices may move just a few ticks or a lot more. Thus, volatility exists in both Betfair and stock trading online.
Chart comparison between Betfair (Djokovic to win Olympic Gold Medal) and Stock (Bank of America)
Liquidity also plays a vital role in both kinds of online trading. If there are no buyers or sellers, how will prices fluctuate? If there is no money involved in trading, whom are we going to take the money from? Liquidity is paramount in financial trading. We need people offering odds to bet on the team and people willing to lay the odds much like the stock market needs both buyers and sellers. More money involved in a market makes the volatility more reliable.
Lay as in Buy and Back as in Sell
When we predict an increase of a stock price, we naturally buy the stock to sell it higher. This is the same with predicting drifting odds, therefore we need to place a lay bet now and make money by backing at longer odds. On the opposite side, predicting a decline of a stock, we short the stock; that is selling shares with the intention to buy to cover later. When Betfair traders predict shortening odds, they submit a back bet intending to lay at much shorter odds.
Depth of Market
Traders have access to the depth of market both at the stock exchanges and the betting exchange. Although the level of depth depends on subscriptions, trading software and trading setup, both Betfair and stock traders can see how much money are available to buy (lay) or sell (back). Depth of market can be extremely useful when the favorite trading style involves scalping. It surely helped me a lot when I traded the horse racing markets.
Charts and Technical Analysis
Since both stock prices and fixed odds are moving in relation with time, it’s easy to present those fluctuations in a chart. There’s a big difference here though, since only tick charts are available at the betting exchange compared to monthly, weekly, daily or minute stock charts. Several different products of charting software have tried to offer more sophisticated Betfair charts but there’s usually an additional cost to use that software (oCharts and QuantSports are the few exceptions). Charting software doesn’t come cheap in stock trading as well, unless you are using something like Ninja Trader. Regarding technical analysis, having applied it at both stock and Betfair charts, I believe it follows the same rules in both trading markets.