Should Sports Exchange Traders get a "real" job?

When I get asked, “what do you do?”, I don’t tend to say, “oh I place an average annual salary on every horse race throughout the day. I don’t even glance at the form beforehand. But it’s really not like gambling”. I tend to mention my part-time businesses or what I used to do.

When I have mentioned sports exchanges in reply to this oft-asked ice-breaker, I have almost succeeded on occasion to keep the conversation the right side of respectable, but then as soon as I have to mention the word “horses” I can feel a cavern opening beneath my feet taking me back to burn in hell where I belong!

I have felt this unease from many people and at times from myself. Why is this?

I think at its simplest, any link with betting on horses has a very negative connotation for the majority of people. When I explained in detail what trading on horses is about to a friend, she pointed out that her father lost a fortune betting on the horses and I suppose this indirect negative experience of gambling is typical.

When I started dabbling with Betfair trading in 2005 I believed the sales blurb from the software maker that it wasn’t gambling. Now I am sure that it is gambling. But I do believe that trading is a subset of gambling that probably has a higher likelihood of success (albeit still very small).

When betting, you only need to produce your stake for the next bet, whilst when trading, you are intentionally using far larger amounts of money than you intend to risk. The problem is that if it goes badly wrong, then a form of Parkinson’s Law can rear its ugly head – Losses expand to fill the size of the bank available! Looking at the path I’ve taken in the past 5 years – and losses along the way – surely does mean that trading is gambling and the losses can be horrendous. Just look at how many blogs spring up from traders only to disappear in total bank loss within months or less.

It is gambling that has the negative connotations, not horseracing per se (but the search suggestions on Google are quite shocking) although obviously the two are inextricably linked. According to the British Horseracing Authority, “Racing remains, by a clear margin, the country’s second biggest sport after the modern commercial and social phenomenon that is football, with core industry expenditure now exceeding £1 billion per annum and a total economic impact of £3.4 billion”. So we’re part of a huge tax-paying industry (£325 million in 2008) with over 100,000 direct and indirect employees. That’s a good thing isn’t it?

Furthermore, Betfair stated last July that for the financial year 08/09, "Betfair paid £6.16m of the reported £6.2m paid by “exchanges”. We also paid more than 90% of the £1.35m which has been reported as “voluntary levy from offshore operators”. This payment was paid at the full levy rate – 10% of gross profits.

Our total contribution to the Levy in the period is therefore approximately £7.5m, up 7% from last year.

............Betfair would like to thank its customers for their continued support which enables us to make significant contributions to British racing.

Football doesn’t seem to have the widespread negative connotations about gambling (although I think the same or more may now be gambled on it than horseracing on Betfair). Betfair’s M.D., Mark Davies, states on his blog, “80% of Betfair's revenue came from UK horseracing eight years ago, and less than 25% does today”.

Here's something I've been mulling over for some time. What is gambling? Just betting? What about hedge-funds, Forex traders et al? Is that socially acceptable gambling ? It is after all, gambling. British taxpayers are all the owners of several banks to prove what goes wrong when their bets lose. What do those traders do that is so superior? Why are they "Masters of the Universe" and horseracing traders are something to be frowned on?

What about the millions of people following a traditional career path who "invest" chunks of their life-savings in shares? My opinion is that they’re gamblers too. In some ways that is quite reckless as it is not their full-time job to research companies properly, albeit that as the stock-market goes up over time then with a portfolio you should be on a winner eventually. But if getting a steady return is the objective then why not stick savings in the bank or government bonds etc? Because, I think, it's a gamble to make more.

What do you reckon, traders?!