The Advantage of Sports Trading

The main advantage of sports trading is the control of risk. That statement will need some support so let us proceed.

If you have read my article on efficient market hypothesis then you will understand the following

1) The wisdom of the crowds ensures that the price on a sporting proposition is directly linked to the chance of it occurring. For example, horses at SP odds of 2.0 generally have a 50% chance of winning.

2) As a market gets closer to the end of the event the less volatile a price will be as it tends towards the true probability (hence price) of that proposition being true. For example, in an "In Running" market the price of a winning proposition tends to 1.01. And, a price will tend towards its true SP just prior to the sporting event starting.

3) Unlike financial trading, the market for a sporting event has a defined beginning and end.

4) In a financial market, there is always another day so any price only represents all that the crowd know at this moment in time but that there is always another day to shock the market and wipe out your position. Not only that but even when financial markets are closed during the night, there is still a market. In the morning there is no guarantee that last night's price is going to be today's starting price so positions can be wiped out overnight with no chance of getting out.

5) Are their shocks that could enter a sporting event? Yes but they are all manageable.

a) If a horse is pulled out of a race before the off then you get your money back.

b) If new information creates a run on a horse's price then the prices on all the other horses have to move to keep the overround close to 100%. These price changes will happen over a manageable amount of time, allowing the trader to get out of a losing position and minimise losses.

c) Price shocks are not as manageable in a financial market where price crashes often result in a cessation of trading whereby traders cannot close their positions and must take a large loss.

6) In financial markets the price of an instrument is potentially infinite but in a sporting event the probability of a proposition occurring is going to have clearly defined bounds. Not to mention that the prices available can only ever range from 1.01 to 1000

7) Sport is less corrupt than finance. Of course, we can never be sure if a horse race is true run or if a football team has agreed to throw a game. However, there is a neverending stream of news about the rigging of just about all financial markets. If you are not a market maker in finance then you probably shouldn't be in that market.

In conclusion, sports trading offers an investment opportunity with excellent opportunities to control risk.

No comments:

Post a Comment