Difference between "trading" and "gambling"

[ruthlessimon]

I've always found it hard to accept this volume/fair price correlation holds true for favourites. Yes a lot of punters deliberately select horses & target prices (wisom of crowd blah blah blah), but there's a whole load of high street punters who just choose 'Favourite'. So does the favourite attract more money than it should ?

It'll be dead easy to test with a spreadsheet - although I suck with spreadsheets . I still believe it'll be very close to 100% - even with the backing bias

[Euler]

The volume on the favourite is nowhere near it's true chance, it's very rare that it is. There is always too much money on the favourite.

[Euler]

I was thinking about that the other day, as more traders enter the game (get wise & profitable). That 'should' mean volatility decreases year on year, as the markets become more efficient. But it just doesn't seem to be happening. Although this would be an ultra slow process - something like climate change probably would be a good analogy

Volatility is actually increasing year on year so it's odd to see that. But volumes are not really growing that amazingly so increased volatility is probably partly down to that.

[ruthlessimon]

mmm I'm not so sure

Lets take the 16:35, steamed, but formed a VPOC @ 1.49 - I believe this price really is close to the true probability of the horse. The backing bias is there, but an "in the know" layer sat there & soaked it

[Derek27]

The exchange price for the favourite may be closer to its true price, it's nearly always to short with the bookies. That's why bookies lay the favourite to make a loss - it's always backed disproportionately to its chance and becomes the bookies main source of turnover.

[Kafkaesque]

As far as I know, there's been several studies showing that the Pinnacle closing prices are extremely close to a fair price, so I'd say, you're off on that one. Call it wisdom of the crowd (with sharpies being a more significant part of said crowd) or whatever, but there does seem to be a fair price. Otherwise Pinnacle's business model wouldn't work imo.

Kafkaesque, I think you may be confusing fair price as in close to 100% overround and fair price as in true chance of winning. In any case, I never said there wasn't a fair price, I said it's not relevant to where a gambler enters the market: if he wants to bet at 2.5 he will bet at 2.5 regardless of what a fair price is.

It's mathematically not possible to calculate the true chance of a horse. You can prove that on average for a collection of runners that they are fair prices, but if the overround is close to 100%, you know this anyway.

I'm not confusing those two, no. The reason Pinnacle are confident in offering so close to 100% overround is precisely that - nearly - all the information is in, and the sharps have collectively moved the prices to very close to mathematically correct chance of each outcome.

Key is that I say matches. It may be that it doesn't apply to horses, and the studies were done in terms of football, tennis, American sports etc. I've never been into horse racing, so I'll openly admit to possibly being wrong on that count, as I cannot recall if the studies covered horses.

Your point on a gambler entering at 2.5 nomatter what is interesting. I assumed, and have read the rest of the thread as, a gambler being someone betting seriously, looking for edges. If you're talking recreational gamblers taking any old price vs. traders it's a different kettle of fish altogether, and the differences are so vast, it's not even worth discussing imho.

[Derek27]

If the most serious and intelligent gambler in the world thinks a horse is a good bet at 6/4, that is the price that he will back it at because that's where he feels the edge is !!!

But in your example, if fair value is 11/8 & price touches 6/4 - gambler 1 is desperate to get his back filled. I'd imagine gambler 2 would be the one filling his back orders, considering he's unhappy backing @ 5/2. I think this is why the SP is so accurate. The bad traders are killed off.. well their banks are killed off - just like natural selection (an argument in favour of PC). Lets say in your example price currently trades @ 6/4. Gambler 1 is happy executing at this price & will get filled as much as he can. Whereas gambler 2 disagrees & thinks this is an extremely good lay price. The two battle it out & price their knowledge into the market. If trader 1 is correct with his analysis & others agree 6/4 is cheap, he will move the market back to fair value. Gambler 2 now has a huge loss, his knowledge was incorrect - & the market takes his money - & he is removed from the game.

I was simply making the point Kafkaesque, that what I've outlined above in bold is wrong, he won't get as much as he can on because, if he's intelligent, he'll want a limited sum of money on.

[ruthlessimon]

what I've outlined above in bold is wrong, he won't get as much as he can on because, if he's intelligent, he'll want a limited sum of money on.

Why? (I'm talking about fundamental traders) If they've got an edge & they pay PC + have a 6figure bank, they will scale as much as the market allows surely? These are the guys that make the plays, who call the highs/lows in the market. If something's going cheap, they'll take as much as they can get their grubby hands on

[Crazyskier]

I think there is sometimes a danger that 'traders' forget they have a lot in common with 'gamblers' - assuming you have no risk ('I'm not gambling' etc) is a dangerous path to take. It's fine, it's only a 'trade' I'm placing...can soon become, 'so what if I'm overstaking...' etc

As an aside, I remember reading some time ago that all the biggest one-off losses (single market losses) on Betfair were mostly from traders (not gamblers). Has to make you think, when making comparisons.

There will be some low stakes, highly well controlled and disciplined gamblers out there that would make many traders look downright reckless.

Couldn't agree more

CS

[Derek27]

what I've outlined above in bold is wrong, he won't get as much as he can on because, if he's intelligent, he'll want a limited sum of money on.

Why? (I'm talking about fundamental traders) If they've got an edge & they pay PC + have a 6figure bank, they will scale as much as the market allows surely? These are the guys that make the plays, who call the highs/lows in the market. If something's going cheap, they'll take as much as they can get their grubby hands on

I'm afraid you weren't talking about traders but gamblers.

Gambler 1 is happy executing at this price & will get filled as much as he can.

[ruthlessimon]

I feel like this is LGBT & I can't give them the right 'gender'

If he's a bad gambler - yes, he'll go broke so scaling would be a bad idea.
If he's a good gambler - he'll have the bank & the conviction to make the play.

[Euler]

I can make money from a market that is perfectly priced, but a gambler can't. There is a key difference between trading and gambling.

[Derek27]

I feel like this is LGBT & I can't give them the right 'gender'

If he's a bad gambler - yes, he'll go broke so scaling would be a bad idea.
If he's a good gambler - he'll have the bank & the conviction to make the play.

Have you not heard of the Kelly criterion?

Even if you have an edge, if you over stake you will lose or even blow your bank.

The same applies to traders. Some traders just need to get it right 55% of the time to succeed. If you plough the bulk of your £20000 bank in one trade, you need to get it right 99% of the time (and blow your profits on the 1%).

[ruthlessimon]

Might not have made myself clear - Yes "Filled as much as he can" relative to his risk profile & bank size obviously. My point was, he should have provisions in the strategy to back again, if the price reaches 13/8, 7/4 etc. Not that he'd put his bank on 6/4

[Derek27]

Might not have made myself clear - Yes "Filled as much as he can" relative to his risk profile & bank size obviously. My point was, he should have provisions in the strategy to back again, if the price reaches 13/8, 7/4 etc. Not that he'd put his bank on 6/4

Fair enough.