tick, tock, boom - what's at stake?

There's two things I'm considering - relative stake for backing and laying, and also what's a 1-tick trade worth as a % of my trading bank?

First up, the value of a tick. I made a fundamental trading error for years. When I was doing scalping trades looking for a 1-tick profit only, it took me a long time to realise that entering a trade right on one of the points where the odds increment changes on betfair has almost double the risk of a trade only 1-tick away and therefore I simply shouldn't enter a trade at these points. I think it's the gambler in me - I wouldn't enter the trade unless I was confident of a winning trade anyhow, so what does it matter if the risk is higher? Well of course anything can happen in the market and this is one of the many many routes to the poor-house.

In case I haven't explained that clearly, for example, if I enter a trade with a back order at odds of 3.00 and I successfully exit with a lay at odds of 2.98 then I have made 2% (0.67% if I green-up). But, if the trade goes wrong and I exit 1-tick higher, the odds are 3.05. I have lost 5% (1.64% if I red-up). My loose understanding of probabilities says that I should only enter these trades if I have over a 70% chance of success - but it would be unusual to be that sure if indeed it is possible in reality. A similar scenario of course applies at the 1.99-2.00-2.02, 3.95-4.00-4.05, 5.9-6.0-6.2 etc odds-increment changes.

What I do now is turn this on its head and bear it in mind when the odds have drifted towards the point of an increment change and are getting sticky. I'll try and lay 1-tick before the odds-increment change (e.g. 4.0). I'm certainly not the first one to spot this, as demonstrated by the huge piles of money that accumulate at these points, so sorry if this is old school to you! Because of the large amounts that tend to accumulate at these points I have found that they are relatively safe trades - if there is enough trading volume to get matched.

The second part of what I'm considering is how to allocate my trading bank to each trade. I'm aware that some only risk a minority of their bank for each trade and I can see some advantages of this, however personally I am in rather of a hurry to get to the gates of freedom and I like to put every penny on the line, every time. (I think Rik Mayall put it something like,"I'm on the last freedom moped out of nowhere city" in the Young Ones). I guess it's the gambler in me again.

Before I used BetAngel, the software I used required me to work out my stake for each race. I would work out the maximum I could lay the horse for that I was trading. That would then also be my stake for entering a back-trade on the nag. With BetAngel I found that I had the option to open a back trade for my whole bank and open a lay trade for my bank / the odds, not only that but it automatically calculates the maximum lay amount precisely according to the current odds. Great I thought!

It is kinda great, but the obvious draw-back is that if the horse I'm trading is at, say 4.00, then I'm opening back-trades for 3 times as much liability as I open lay-trades. If the odds are indeed shortening then this pays me the maximum profit I can make with my bank, however, if the odds actually drift then I lose 3 times as much by getting a back-trade wrong as I do by getting a lay-trade wrong. What would often happen is that I would make a couple of winning lay-trades and then only one losing back-trade would put me in an overall loss. Don't get me started on what happens when there's a rapid drift in the market..............

I've also heard that some people don't trade on odds above a certain point. I thought, why? I got to thinking, "am I being daft again?". After all, if you're being responsible and trading back and lay trades with the same stake, then the higher the odds the smaller the stake and that would compensate relatively for the higher odds (and the bigger odds increments between ticks in absolute terms). I think the answer is actually due to the smaller liquidity in the 6/8/10 odds range making it potentially more volatile and therefore risky, so fair enough.

However, it made me think about the difference in profit for trading 1-tick at, say 2.20 and 3.80. The answer for that example is that you make 0.78% trading a tick from 2.18 to 2.2 and only 0.48% trading from 3.75 to 3.8 (after greening-up). The average is 0.62% from odds of 6.0 down to 1.6.

The graph shows what % profit (or loss!) you make for a 1-tick trade at a range of odds from 10.0 down to 1.2 (after greening-up)

The greened-up % profit is shown on the vertical axis and the odds range from 10 to 1.2 decreasing along the horizontal axis.

The two lines represent different staking strategies. The blue represents a level stake the same at all the odds (and greened-up). This would be the case for back-trades if you always staked your whole bank.

The purple line is where you stake relative to the odds, i.e. the maximum for lay-trades (and also back-trades if you being sensible and also limit that relative to the odds).

What it basically shows from what I can see is that if you divide your stake by the odds, back or lay, then the value of a 1-tick trade is relatively consistent and the method I've been using for back-trades is multiples more risky, so I should stop. Equally, when I'm laying below odds of about 1.6 I should limit the stake to my maximum back stake to keep it consistent. Naughty me.

What's also interesting is the sharp differences in profitability around the points where the odds-increments change. But at the end of the day, who's only going to trade where the % is slightly higher? Not me!

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