Successful sports trading in Betfair or any other online betting exchange depends a lot on proper money management. It may only seem important to pick up the online betting odds movements correctly, but applying money management in trading the online betting odds will make money for serious sports traders. If we are just starting out trading the odds, managing our betting bankroll will certainly make us last a lot longer in this trading game.
To begin with we should define a starting online betting bankroll which we will use exclusively for trading and we won’t be upset if we lose it. If that happens, we will consider it as the fee we paid to learn about money management and how to trade correctly. However if we are proven to be good in trading, we would increase our capital without the risk of losing it and actually make money. Whatever the scenario, having put aside a specific figure for our available capital helps a lot in various ways and it looks a lot more professional.
Now that we have defined our trading capital, we divide it in 50 equal parts. For example, if our trading bankroll is $500, we split it in $10 bills. If our bankroll is €1000, we have 50 parts of €20. The reason behind this is to always risk no more than 2% of our bankroll at any time. Risking that much of our betting bankroll means that we will continue trading even after 40 losing trades. Variance can kill our trading game and we should properly think of our money management plans, so that we can continue testing our method or change it and try something else, but with a sufficient bankroll to work with. We then go on and divide our bankroll left again in 50 equal parts. For every new trading strategy we try, we always start by splitting our trading bankroll in 50 parts. The biggest the risk you want to take, the fewer those parts should be, meaning increasing the percentage of your bankroll you stand to lose in each trade or bet. For instance, you might find more appropriate to risk 5% of your available trading capital in each trade, which would lead you to divide your bankroll in 20 equal parts. However, a bad run of 20 losing trades would wipe out your whole bankroll. My opinion is to always start out with 2% of your capital and to increase your risk after 500 completed trades and a proven winning trading strategy, targeting higher returns and making money.
Read more about risking 2% of your bankroll.
Now that we have defined our trading bankroll and know the percentage of it we want to risk in each bet, we decide on the sport we’d like to trade in. This is purely a personal choice and it depends on the sport you expertise or have good knowledge of. That is if you don’t know what “game” means in tennis, trading in-play tennis matches shouldn’t be your favorite choice. On the other hand, trading horse racing markets before the off like in my trading videos, you can base your trading on news, statistics or in your technical analysis skills from your past financial trading experience. In other words, you don’t have to know a lot about the details of a sport depending on your method. I myself found out that some race courses are for jump racing while the rest are flat racing only after one year of full trading the UK racing markets! It was a mystery for me why so many horses fell down before the finish line running on a flat track! However, I knew right from the beginning about good money management and was able to make money.
The next step we should be taking is defining our stop loss, the point that is we would close our trading positions. The stop loss is always defined in comparison with the amount we enter in each trade. Let’s examine an example for better understanding.
Let’s assume your trading bankroll is €1,000, you’ll be risking 2% in each trade and you’ll be trading in-play footbal matches. You have a very basic trading strategy starting by backing the favorite team and want to apply money management. In the upcoming football game between X and Y teams, X team is traded at 2.00 betting odds. You begin your trading by backing €100 at 2.00. Given the fact that you risk 2% of your €1,000, if the odds reach 2.20 you should exit the market since by laying €100 at 2.20 you’d have lost -€20.00 on X team. So, your stop loss is 2.20.
This is not however the whole story. There is a relation between the stop loss and the betting odds movement. If the X team’s odds were 1.50, your stop loss would be 1.70. But moving from 1.50 to 1.70 there are 20 steps, the so called “ticks”. Moving from 2.00 to 2.20 there are only 10 ticks (2.00-2.02-2.04-…-2.18-2.20). So, while in the 1.50 occasion you risk €20 on a 20 tick movement, in the other situation you risk the same amount on a 10 tick movement. That is why we should change our stop loss depending on the ticks’ value. Instead of 2% of our capital we will define our stop loss at a 10 tick movement. You can obviously put your stop loss wherever your strategy tells you better. After defining the number of ticks of your stop loss, you should calculate those ticks’ value to be equal to 2% of your bankroll. If for instance you have 10 ticks as a stop loss, each tick should be valued at €2.
Let’s do a small revision so that we don’t get lost in the money management maze. We have €1,000 as our trading capital, we risk €20 per trade and our stop loss is 10 ticks. Depending on the team’s odds, we now calculate the amount we should be trading according to the odds as follows:
- 1.01-2.00: We trade €200 so that a movement of 10 ticks to result in €20 win/loss.
- 2.00-3.00: We trade €100 so that a movement of 10 ticks to result in €20 win/loss.
- 3.00-4.00: We trade €40 so that a movement of 10 ticks to result in €20 win/loss.
- 4.00-6.00: We trade €20 so that a movement of 10 ticks to result in €20 win/loss.
If now we intend to green up (how to green up) on all the possible outcomes of a game, we can increase the above amounts by just a little, since in the end we won’t be losing €20 but less after greening up. For example, €20 loss at 1.50 would mean that by backing €13.3 we would lose €13.3 whatever the outcome, while €20 loss at 4.00 would mean that by backing €5 we would lose €5 whatever the outcome. In other words, we should be trading with 2.66 (=4.00/1.50) times more money at 4.00 than at 1.50 so that the final loss would be equal.
Because maths can be confusing at times, we will calculate the final amounts we should be trading with, according to the mean price of the betting odds.
- 2.00-3.00: 2.50/1.50 = 1.66 times the amount we calculated earlier.
- 3.00-4.00: 3.50/1.50 = 2.33 times the amount we calculated earlier.
- 4.00-6.00: 5.00/1.50 = 3.33 times the amount we calculated earlier.
In conclusion we will be trading with the following amounts:
- 1.01-2.00: We trade €200.
- 2.00-3.00: We trade €166.
- 3.00-4.00: We trade €93.2.
- 4.00-6.00: We trade €66.6.
By trading the above figures and greening up in the end, we will always lose €13.3 in case of losing. We wanted €20, remember? We just have to multiply the above numbers by 1.50 (=20/13.3). So, for a trading bankroll of €1,000 and 10 ticks stop loss:
- 1.01-2.00: We trade €300 so that a movement of 10 ticks to result in €20 win/loss after greening up.
- 2.00-3.00: We trade €250 so that a movement of 10 ticks to result in €20 win/loss after greening up.
- 3.00-4.00: We trade €140 so that a movement of 10 ticks to result in €20 win/loss after greening up.
- 4.00-6.00: We trade €100 so that a movement of 10 ticks to result in €20 win/loss after greening up.
Depending on your bankroll, the % you want to risk per trade and the stop loss, you can change the figures above. If you have €500, you halve the figures. If your stop loss is 5 ticks, you double the figures. If you risk 6% of your bankroll, you triple the amounts.
Because time is money, I have created an Excel spreadsheet with all the above calculations for proper money management. You simply enter your available online betting capital, the percentage you want to risk and your stop loss, and the sheet automatically calculates the amounts you should be trading depending on the odds and considering you will green up in the end.