This is the first video in a series on how I read horse racing markets. I do most of my trading in the last 2 minutes before the start of a race. During this time, the market has a clear direction and a goal that it wants to reach. The market has the same goal, probably in all horse races. This may also apply to other sports as well.
Understanding what the market is trying to do, is the first step in reading the market. There is more work involved before you can take advantage of this knowledge.
In this video, I will explain what the market’s goal is.
How to Read Horse Racing Markets – Part 1: The Market and the Reset
This video is a sports trading video. Sports trading is gambling and I’m not giving any advice in this video. I am just giving my opinions.
In this video, I will discuss the following.
Firstly, I will explain the difference between a big picture view of the market and the small picture view. The gurus teach you the small picture mindset. The small picture is useful. However, the big picture is more important.
Secondly, I will break the market down. I will discuss, what the market is, who the players are in the market and what their roles are.
Thirdly, I will explain what the goal of the market is. The market does have a specific goal. Understanding this goal, is the first step towards seeing the big picture. In order to put this information to use, you will need to learn to read form and read the betting.
I will make videos covering these skills later. These skills are not difficult to learn. The only difficult part of trading horses is finding out what you need to learn.
1. Trading, Poker and Betting
There is a lot of information that you can use to help your trading. Most of the information is outside the ladder. Once you have this information, you still have to put it together, make sense of it and formulate a plan.
I used to play poker and my trading strategies are derived from a combination of what I learnt playing poker and what I learnt during my punter days. Strictly speaking, I still am a punter because I do sometimes have a bet.
Throughout this video series, I will use some basic poker concepts as analogies to explain certain trading strategies. You don’t need to know anything about poker strategy. I will only be using the most basic of poker concepts.
So, let’s start with this analogy. Imagine you are watching a game of poker between 2 players. You can trade on, which player, you think will win the hand. So, there is a ladder, with odds on it. Let’s say this ladder represents the button’s odds.
If you wanted to trade on this hand, what information do you have? The answer is you don’t have any real information. The only information available to you are the movements of the odds. Therefore, the only strategy available to you is to chase the odds as they move around.
a) How Many Cards Can You See
However, what if you could see one of the button’s hole cards? In this case, you can see an ace, which makes the button a favourite against a random hand. Wouldn’t seeing just one hole card give you an advantage over the trader, who couldn’t see any hole cards? The poker players, themselves can see 2 cards. If they were playing on the ladder, they would have an information advantage over everyone.
b) Games of Incomplete Information
The point is that both poker and trading are games of incomplete information. When you have more information than other players, you have an advantage. When you have less information, you have a disadvantage.
c) 3 Levels of Information
Let’s look at how this translates into the trading horse-racing scenario?
There are 3 levels of information. The stable staff, horse racing owners, and other connections have inside information. They know their own horse and how well it is likely to run today. This is equivalent to seeing a whole hand in poker. The bookmakers have even more information. They probably have connections with various stables, through which they can get information on more than one horse in the race.
The form-reading traders can see the form. However, they don’t have inside stable information. Therefore, form readers have less information than stable staff. So, form readers have the equivalent of seeing one card of the poker hands.
The guru-trained traders are taught that they don’t need to read form. These traders have the least knowledge because they don’t read form and they don’t have inside stable information. This is equivalent to seeing no cards. The students of gurus base their trades on the movements of odds during the last 5 minutes before a race. Since everyone can see the movement of odds, these traders don’t have any knowledge that anyone else doesn’t also have access to.
d) Avoid Chasing Odds Around
Reading the markets solely by looking at the odds is difficult. If you open a race in the ladder with no prior knowledge of the race, you have left reading the market too late. In this case, a lot of traders just end up chasing odds around.
I will explain why it is difficult to read most markets solely by looking at the odds. Let’s say, a trader thinks that a horse’s odds are going to drift. He puts his trade in and the odds go a few ticks in his favour. Next, the odds come down by a few ticks. What should he do now?
The same question can be asked when he puts a trade in and the odds go against him slightly. What should he do?
The answer is that he doesn’t have a clue.
The odds looked as if they would go in a direction. In the first example, they did go in that direction. Then, they reversed, which means that the odds looked as if they were changing direction.
A. The Big Picture versus the Small Picture
There are 2 main issues with the trader’s behaviour. Firstly, he doesn’t have a long-term view of the direction that the odds will go in. This results in headless chicken-like behaviour, with the trader chasing odds all over the place.
It’s the difference between seeing the small picture and the big picture.
1. The Small Picture
The small picture is what you see on the ladder.
For example, you might lay a horse because its odds have come down and they seemed to have slowed down. The small picture answers the question,” Is this the right time to enter the trade?”
2. The Big Picture
The big picture answers the question, ”Does my trade have the right long-term direction?”
The big picture gives you a long-term direction. It gives you an opinion whether you think the odds are too long or too short.
You can afford to make mistakes with the small picture. If you get your entry point wrong, you don’t always lose and often, when the odds go against you, they will come back and you can scratch the trade.
However, if you are often getting the big picture, that is the long-term direction wrong, you won’t have any confidence in your decisions. Therefore, you might green up too early or not green up when you should. When the trade goes against you, you won’t know whether to wait or close the trade.
The problem with making short-term decisions solely on market movements is that you don’t know whether the change in the odds is random. Therefore, you don’t have a real reason to believe that the odds will continue in the same direction or reverse.
3. Trading Decisions should be Linked to the Sport
Secondly, we should aim to explain our trading decisions, in terms of the sport. I will use a football analogy. Let’s say, Leicester City are playing. When the team sheets come out, Jamie Vardy isn’t playing. Just in case you don’t know, Jamie Vardy is an important player for Leicester. If he is not playing, the odds for Leicester will almost always drift. In this situation, traders are likely to lay Leicester as soon as they see that Vardy is not on the team sheets.
The point I am trying to make, is that if you ask a trader, why he layed Leicester in this situation, he would say that it was because Vardy wasn’t on the team sheet.
He won’t explain it in terms of resistance points, advanced charts or any other superstitious nonsense. He will explain it in terms of the sports.
It’s ok to avoid walking under ladders when you are out and about. However, if you are superstitious on a trading ladder, you’re likely to create an unhappy destiny.
I base my trading on theories. Theories are different from superstition. Theories are based on logic or evidence, while superstitions are just made-up nonsense. Although theories aren’t proven, a good theory can help us to make good trading decisions.
C. Breaking Down the Market
So, I want to discuss the betting and the players in the market. As I’ve said, it’s difficult to win by just looking at the betting. It’s also difficult to win by just looking at form.
It’s not as straightforward as back horses with good form and lay horses with bad form. Our aim is to interpret the betting by referring to the form. In other words, we want to connect the betting with the form to reach conclusions about what is going on.
1. Playing the Players in the Market
The idea of “playing the player” comes from poker. There are 3 aspects of playing the player. The first is understanding, who your opponents are. The second is to understand what their tendencies are.
Different poker players bet their hands differently. For example, some players will bet their strong hands strongly and play timidly with weak hands. You have others that bet their weak hands strongly (because they want their opponent to fold). These same players may act as if they are weak, when they have a strong hand (because they want their opponent to bet the hand for them and because they are scared that their opponent will fold if they bet). These are beginners that I’m talking about. As players learn the game, they start to mix up how they play their hand to prevent other players getting a read on them.
Stables also have betting patterns. Some are straightforward. Others appear to go out of their way to set up a gamble. Some stables are more prone to the odds of a well-backed favourite bouncing back. Others are more aggressive when they back their favourites. Unlike poker players, who learn to mix up their play, stables tend to be consistent in the way that they bet on their horses.
Thirdly, once, you identify a betting pattern, you have to figure out how to exploit the other players’ tendencies.
So, let’s look at the different types of players in the trading market.
2. The Market is not a Single Giant Machine
So, the market is a not a single giant machine. You may hear gurus say things like the market is ruthless and the market doesn’t care. Not only does this gives the impression that the market is a single entity, but it also gives the impression that the market is psychopathological.
We want to look at reality. The market is neutral. If you are consistently losing money, it means that you are making too many mistakes.
When we enter the market, we usually enter with a 1 tick disadvantage and we have to pay commission on winnings. This isn’t a huge disadvantage to overcome.
If we can identify the groups that make up the market, we may have a better chance of overcoming our disadvantage.
The market is made up of groups of people. I have broken the market down into stables, punters, traders and bookmakers. Each group has its own purpose within the market.
So, let’s look at these groups and their possible roles in the market.
a) Stable Money and Information
Firstly, there is stable money.
By stable money, I mean money bet by anyone connected to the horse, such as trainers, stable staff, and owners of horses. Stable money is likely to have a bigger influence in weak markets than in strong markets. For example, the betting for a super-strong market, such as the Cheltenham festival, is likely to have money being bet from a lot of different sources. In addition, at Cheltenham, everyone is trying to win, and a lot of stables will fancy their horses to win. Therefore, the effect of stable money might become more diluted in strong markets and high class events.
In most horse-racing markets, the class of races tends to be low and the markets are weak. Therefore, stable money is likely to be a dominating force in these markets.
Owners buy horses for these types of races because they want to gamble. The prize money probably doesn’t pay the training costs of the horse and there isn’t a lot of prestige to be gained by winning a low class race.
Therefore, there is a lot of stable connection gambling going on. It’s important to understand that the money being bet by stables and connections, is likely to be a lot more than most people imagine.
In addition, where there is big money being bet, there is likely to be intelligence involved. In other words, they are not thinking that I think my horse will win and therefore, I will back it at any odds. They probably have an accurate range of the value odds of their own horse.
What I am getting at, is that stables may not be betting in the way that we think. Here is an example. Imagine, you have a horse. You think it is value above 3.0. You don’t think it is value below 2.5. In fact, you think it is minus ev below 2.5. In between 2.5 and 3.0, you are not sure whether it is value or not.
Most of us think that stables back horses and allow the horse to run. However, wouldn’t the stable get more value if they back the horse, when its odds rise significantly above 3.0 and lay it when its odds fall significantly below 2.5? The answer to that is yes.
What’s more, a stable can back and lay at value prices all day until the start of the race. The reality is that more information can come in as the day goes on and the stable may change their opinion about their own horse. For example, if the stable sees another horse in the race getting heavily backed and this was unexpected, the stable may start to doubt their original opinion of the value odds that they assigned to their own horse.
This isn’t even mathematical rocket science. As I’ve said, I have the occasional bet. There have been occasions, where I have backed a horse at around 3.0 and the horse has been backed to an odds-on price. Let’s say, it gets backed to 1.9. When this happens, I ask myself, “If I didn’t already have a bet on, would I ever back this horse at 1.9?” If the answer is “not in a million years”, I turn my punt into a trade and take the money. The winnings from the trade are small compared to the winnings, that I would get, if the horse runs and wins. However, sometimes, the horse will run and lose. It’s not about the total amount of money that I can potentially win. It is about value. When turning a punt into a trade, it’s about backing at value odds and laying at value odds and not just laying because I am in profit.
If I can figure this out, I’m sure the big stable punters can as well.
As traders, we don’t usually have such accurate information. As a form reader, I don’t have a clear idea of the real value of a favourite in most races. However, we can use the information, that we have to get reasonably close to finding good spots to trade in.
The reason that I have coloured stables and bookmakers in red, is because they are not going to be that different from each other on how they think about gambling.
In addition, information from stables is likely to move markets early in the day. You might think that stables keep their information secret. Some might. However, others might not. Stable information is valuable to bookmakers. Therefore, there could be mutually beneficial relationships between stables and bookmakers whereby information is shared.
Some of you might be wondering how we can separate stable money from punter money, when we are looking at the betting. The answer is, often you can’t, but very often you can. I will deal with this question in more detail later in the video.
b) Punter Money
Secondly, there are punters. When we are trading, we need to get into the average punter’s mind and think about how an average punter will view a race. We are not trying to get into the mind of a professional punter, who looks for value bets at long odds. It would be too difficult and time-consuming to try and find those types of horses anyway.
There are different types of punters. The 2 types of interest are:
1. The short-priced favourite backer.
2. The follow the money backer.
The short-priced favourite backer doesn’t just back any old short-priced favourite. This punter is likely to be a form reader. This is one reason why we need to read form. We need to predict which horses that they are likely to back.
Almost all types of punter are trainer-aware. That means that their judgement on a horse will also be swayed by:
- Whether the trainer is well-known
- Whether the trainer’s horses are on form
They will back lesser-known trainer’s horses if the trainer is in excellent form or if the horse has excellent form.
Punter money has the potential to push the odds out of their real range. I’m not saying that all punters aren’t aware of value. However, many are not. This applies especially to the follow the money punters. In any case, where there are punters, there are often good trading opportunities.
c) Traders
Thirdly, there are other traders. Since most traders lose, we should feel comfortable getting involved in races, with other traders. I’ve heard people say that 95% of traders lose. Although the winning traders probably play for higher stakes than losing traders, it’s likely that, in total the 95% lose more money than the 5% win.
Typical traders are looking to cash in on late gambles and bounce backs.
Just in case you don’t know, in markets, you will often see a drifting favourite getting heavily backed just after the 2 minute pre-race mark. I call this a late gamble. Alternatively, you might see a backed favourites odds bouncing back after the 2 minute pre-race mark.
I look for that late gambles and bounce backs myself. The idea is predict good spots and to get in early. Finding good opportunities takes a lot more knowledge than just thinking that the odds are too low or high, without knowing anything about the horse or the market.
d) Bookmakers
Fourthly, there are bookmakers. You will often hear gurus say that bookmakers dump their liability into the exchange markets. The idea of dumping liability is derived from the small bookmaker, who is running scared because he’s layed too much money on a horse.
I don’t think this is correct in relation to the modern big bookmakers. Mathematically, the bookies can’t dump liability into the exchanges profitably. If they have taken too much money on a horse, the odds on that horse will have shortened. If they back the horse to get rid of their liability, they will be backing a horse at shorter odds than they layed the horse. The kind of money, that a bookmaker would need to bet, to dump their liability, would push the odds down even further.
Back in the day, I used to watch Channel 4 Racing. On days that most of the favourites won, I can remember the racing pundit John McCririck, saying that the bookies have lost a massive amount of money. At the time, I thought, like most people, that the bookies never lose.
However, if John McCririck was right, it means that the bookies do not run a mathematically perfect book.
If the bookies have given bad odds to punters, the bookmakers have got the value and they have enough money behind them to allow the horse to run. What I am getting at, is that the bookmakers can handle big losses and losing runs.
The idea is similar to a roulette wheel. A casino can afford to lose money on a single spin of a roulette wheel. For example, on a single spin, if more people have bet on red than black, and red comes up, the casino will lose. Are the casino owners sweating when there is more money on one colour than the other? I doubt it. The casino owners know that they have the odds in their favour and therefore, they will win in the long term.
Similarly, the big bookmakers have the odds in their favour. The correct odds of a horse are not as clear as the odds of an outcome on a roulette wheel. Bookmakers can make mistakes with the odds on a horse race. However, just like the casino, the bookmakers know that, in the long term, they are giving themselves positive equity and giving the punters negative equity. Therefore, despite the bookmakers occasionally making a mistake with the odds, in the long term, the punters make a lot more mistakes.
Therefore, the bookmakers know that they will win in the long run. They might lose money on a single race or even over a day’s racing if all the favourites win. However, over time, the bookmakers know that they will win, if they keep giving bad value to punters.
We can’t know for certain what a bookmaker does. However, we can try and put ourselves in a big bookmaker’s shoes. We could work out how we would maximise profits, if we were in the bookmaker’s shoes.
I will make 2 assumptions:
1. The bookmakers have enough money to handle losses and therefore, they don’t need a perfect book. They can just take value wherever they find it.
This has already been addressed.
2. Just like some stables, the bookmakers know, within a range, the real value of each horse in a race. I’m assuming that the bookmakers have state-of-the-art technology to work out the approximate real odds of each horse. In addition, I am assuming that they have an excellent information network, whereby they can obtain information on how most of the horses are expected to run today.
3. Possible Bookmaker Activities
So, let’s have a look at some of the activities that bookmakers can get involved in.
a) Getting Rid of Arbitrage Opportunities
I think that it’s obvious that the bookmakers have to remove arbs. In fact, they make a small profit, when they get rid of an arb.
b) Taking Arbitrage Opportunities
Because the exchange prices are higher than bookmaker prices, the bookmakers have arb opportunities. They don’t have these opportunities until there is a lot of liquidity in the exchange market. Although the exchange prices are still better than the bookmaker prices when there is little liquidity in the market, the bookmakers can’t easily arb a large sum of money without knocking the exchange odds down too low.
However, during the 5 mins before the race, everything changes. The exchange market has a lot of liquidity. This means that theoretically a bookmaker could lay a bet on his own website and immediately back the same horse on the exchange as an arb.
c) Controlling Best Odds Guaranteed (BOG)
Bookmakers may back a horse’s odds down just before the start of a race to avoid paying out too much on best odds guaranteed (BOG). This is probably more difficult to do in smaller fields than in larger fields.
If they have layed a horse at short odds and it has drifted, they have probably also taken a lot of money on another horse. Therefore, in a small field, they might not be able to back one horse, without the odds on the other horse going back up. In addition, they have to do this, without creating arbs.
d) Value Betting
Fourthly and most importantly, there is value betting. The bookmakers may be players in the exchange markets. In fact, I trade on the principle that the bookmakers are players in the market. In the financial markets, it is generally accepted by day traders that banks and other big financial institutions are players in the market. In addition, it is accepted that the big institutions control the markets. In other words, banks gamble on the financial markets. Although they probably have an edge, based on information, they can be considered to be +ev gamblers.
If the banks gamble on the financial markets, it’s likely that bookmakers gamble on the sports markets. In fact, if the bookmakers don’t have a mathematically perfect book, they are gambling.
As I’ve said, it’s important to get away from the limiting belief that bookies are risk-averse and are trying to win on every outcome. This belief is a box, that you need to think outside of.
Understanding what the bookmakers do is one of the keys to trading. The bookies probably have more information than anyone. If they know the real value of horses (or close to the real value), value betting and laying should be easy for them.
We should aim to think like them and piggy-back on their market moves. We want a piece of the action.
4. What Causes a Bounce Back?
My favourite time to trade is during the last 2 minutes before the start of a race. We need to get an idea, in real life terms, of what is occurring during the last 2 minutes pre-race. At the start of a UK race, there is often upwards of £250,000 matched. A lot of this money is matched during the last 2 minutes before the race. Late gambles on favourites are probably initiated by stables. Bookmakers might also be involved. Then, there is the bounce back. What causes a bounce back?
The first question is, where does this sudden surge of money come from?
a) Traders? Nope
It’s unlikely to be traders because the odds move in a direction and such moves are often permanent. When traders open a trade this might move the odds in a particular direction. However, when they close their trades, the odds will reverse back.
When the odds bounce, they stay at a high level until the off. They may come down a little just before the off. However, for a real bounce back, the odds never get close to where they were 2 minutes before the off.
There could be some traders, who backed the horse before the 2 minute pre-race point and then closed the trade around 2 minutes before the off. This is unlikely to have such a big influence on the market because the liquidity during the 5 – 2 minute pre-race period is lower than the liquidity at 2 minutes up to the start of the race.
b) Punters? Nope
What about punters? I’ve heard gurus say that the odds bounce back because they have been backed down too low and punters don’t want to back the horse any longer because if the low odds. As usual, the guru explanation doesn’t make sense.
For example, let’s say you have a horse that came in from 1.67 to 1.43 and then, bounces back to or above 1.67. When this horse was getting backed, the punters were happy to back it at all the odds between 1.67 and 1.43. If punters were prepared to back horses at all the odds between 1.67 and 1.43 before, why do the odds need to fly up to 1.67 before punters supposedly take an interest in the horse again?
You might be thinking that some punters lay horses and therefore, they could be causing the bounce back. Although there are some punters, who lay horses, there aren’t nearly as many as those who back horses. You get bounce backs in races, where the favourite is running in its first ever race. Form-reading punters, who lay horses, are never going to find those. I’ve heard that there are punters, who bet on breeding and how much the horse cost. However, I’ve never met any, who would bet on only those 2 factors.
c) Bookies? Yep
If the sudden surge of money isn’t due to traders or punters, this just leaves informed money. That is, stables and bookmakers.
The second question is, do the odds move in a particular direction?
The answer is yes. You’ve probably have heard the following many times. If you back every favourite at the Betfair SP, you will lose. If you lay every favourite at the Betfair SP, you will also lose.
I tested this on a website that has a load of past racing data. The sample that I used was 10 years. If I included 2% commission, my sample lost, whether I was backing all horses or laying all horses. Interestingly, when I ran the same test using 0% commission, backing favourites showed a tiny profit, while laying favourites showed a tiny loss at Betfair SP.
This could be random variation or favourites could be slightly over-priced at the off.
What does this tell us?
Although the Betfair SP might not be 100% efficient, it is highly efficient. When I say “efficient,” I mean that the odds reflect the horse’s true probability of winning.
D. Efficiency and the 2 minute Reset
There may be a deliberate odds re-set taking place, during the last 2 minutes pre-race. If the Betfair SP is highly efficient and the market moves significantly just before the off, it means that the market was relatively inefficient before the market move. This re-set involves the odds moving from relatively inefficient towards the highly efficient Betfair SP.
Could this be random? Possibly but it’s very unlikely. There is a lot of money at stake for the gambling establishments for them to allow the markets to run randomly.
I work with the theory that there is intelligence behind the big surge of money during the last couple of minutes before the start of a race. Normally, I don’t just assume that a large bet is intelligent money. I’m not like the gurus, who see a big sum of money on the ladder and assume that it means something. In any gambling game, there are mugs at every stake level. Although there are fewer mugs at higher stakes, big money doesn’t necessarily mean intelligent money.
However, in the last 2 minutes before the off, we are talking about a lot of large bets, getting matched in a short space of time. When there are a lot of high-stakes players around and they are moving the market, it is more likely to represent intelligent money.
1. Preparing for the In-play Market
There are reasons why the bookmakers might want to reset the odds close to the off. One is that there is another market that the bookies have to get ready for, namely the in-play market. In-play traders and punters bet on what they see. If the in-play odds start off in the wrong place at the start of the race, the bookmakers may be leaving too much value. If horses, that have odds that are too long, have a good start, a fast-acting in-play trader or punter might find a good value bet. If any horses that are too short in the betting have a bad start, in-play traders might be able to lay for value.
So, we know where the odds are going in the last 2 minutes. We know that they are heading towards efficiency.
2. Bookmakers Profit when they Correct the Odds
This correction of the odds is not just about preparation for the in-play market. I will explain how the bookmakers profit when they correct the odds towards efficiency. Let’s start by asking the question why was the market inefficient in the first place?
Surely, the informed money didn’t just figure out what the efficient odds were, just 2 minutes before the race.
The bookmakers probably don’t know what the efficient odds should be overnight or early in the day. They probably build a picture of the race from the form, the overnight and morning betting and any inside information, that they have acquired.
We can assume this because, the night before and on the morning of a race, they often have various favourite’s odds at much higher or lower odds, than they end up at.
They probably have accumulated as much information as they are going to get 10 minutes before the race or even one hour before the race. I will talk about information later. We can get information as well.
Why do they wait until 2 minutes before the race to move the odds to efficiency?
One answer is because there is more liquidity at 2 minutes. However, there is another reason that the bookmaker’s may profit from inefficient odds. That is, they may give inefficient odds deliberately.
I will explain this with an example.
Heads or Tails Example
Imagine a bookmaker is giving odds on a coin toss. The bookmaker knows that the odds of the coin toss are 50:50. However, in this fictitious example, the punters don’t know what the real odds of a coin toss are. In addition, the bookmaker knows that the punters don’t know what the real odds are.
So, the bookmaker puts the odds of heads at 1.99 and the odds of tails at 1.99. As punters bet, is it more profitable for the bookmaker to adjust the odds or should he just keep the odds fixed at 1.99? In other words, if more punters bet on heads, should he move the odds of heads down and the odds of tails up or should he just stick with fixed odds at 1.99? Remember, to bear in mind that in this fictitious example, punters don’t know the real odds of a coin toss.
We know what happens if he keeps the odds at 1.99. If there is more money bet on heads, he will lose if the coin lands on heads. However, if tails lands, he will win more than his potential losses on heads. The bookmaker has a small edge and he win in the long run in a similar way that a casino wins with its fixed odds for roulette.
Let’s see what happens if the bookmakers reduces the odds of heads and increases the odds of tails just like they do with horses. Remember, this is because the punters are betting heavily on heads and not much on tails. So, over the day, the bookmaker reduces the odds of heads and increases the odds of tails.
So, the odds are 1.7 on heads and 2.4 on tails.
A punter could back tails down to 2.0. If that happened, the bookmaker wouldn’t be any worse off, than if he had just kept the odds fixed at 1.99. If the bookmaker has done his maths correctly, he will have given bad odds on heads for a large amount of money and good odds on tails for a smaller amount of money and that should balance out.
However, the punter, who backed tails down, will have taken the bookmaker’s future profits. These future profits wouldn’t be available to the bookmaker, if he had used fixed odds. These future profits are only available because the bookmaker has moved the odds and created an inefficient market.
What are these future profits? Let’s assume that punters do not back tails heavily and the odds remain inefficient until 2 minutes before the coin toss.
Imagine that the exchanges are offering odds on the same coin toss. Their odds are similar but a bit better than the bookmaker odds.
The bookmaker is exposed on heads because of the amount of money that has been wagered on heads compared to tails. But he doesn’t mind because, he has so much money behind him that he can forget about exposure and take any value that is available. He will win more when tails lands than his potential losses on heads landing. Therefore, in terms of value, he is on the right side of the bet.
Now the bookmaker, just 2 minutes before the coin toss, can lay heads on the exchange until the odds reach 2.0. Although he is increasing his exposure on heads, it’s all added value. These are the future profits that I spoke about earlier.
In addition, by taking this value, the bookmaker is moving the odds from inefficiency towards an efficient SP.
This added value is a second reason that bookmakers may move the horse racing markets from inefficiency towards an efficient Betfair SP. The first reason was to get the market ready for in-play traders and punters.
So, allowing the odds to become inefficient up to 2 minutes pre-race and then, correcting the odds on the exchange just before the off, is a beneficial for bookmakers in more than one way.
By the way, this example is an analogy for a bounce back. If, instead of laying heads, the bookmaker had backed tails at the exchange, this would be an analogy for the 2 minute pre-race heavy backing on a drifter.
c) Mindset
To predict efficient odds, we need to read form and be aware of the betting activity on horses earlier in the day.
I’m talking about 2 completely different mindsets. The guru’s student mindset is to look at the odds. They see that the odds were at 1.67. Now, the odds are 1.43. Therefore, they assume that the odds have been backed too low and are due to go back up.
The form reader’s mindset would be to ask whether the horse’s form justifies 1.43 odds, or whether the odds should be higher or lower.
The guru-followers make the assumption that the 1.67 odds were in the ballpark. If you’ve seen enough racing, you will know that this isn’t the case. Sometimes, the odds reduce and keep reducing.
E. Conclusion
In this Part 1 on how to read horse-racing markets, I explained that there is a re-set or a correction of the odds taking place during the last 2 minutes before the start of a horse race. Therefore, we now know where the market is going.
In Part 2 of how to read horse racing markets, I will discuss form. I will explain how different form criteria affect my trading decisions. In other words, I won’t just reel off a bunch of form variables. I will link form to the market.
So, that’s all for this video. Take care.