Spend any length of time on Betfair's exchange and you will see bots in action. A lot of the bot action is instigated by Betfair itself. To a large extent Betfair's sports betting exchange is a dark pool. However, I don't believe any of the users are getting preferential treatment as the High-Frequency firms are in the financial markets. More that Betfair itself has bots running on the exchange to hoover up loose change. Maybe dark pool is a strong term, considering its negative connotations in the financial world but the exchange exists to make Betfair's shareholders wealthy people.
Betfair has its own traders and also its own fixed odds service for those who just want to bet and not get involved with trading. The more profit Betfair makes the happier its shareholders will be. Betfair's traders will have their own idea of where prices should be. Coupled with that is demand from the fixed-odds service, which means that Betfair is always dipping into the exchange when it sees a value arb or wants to balance its book. When there are large gaps on the odds ladder I like to place minimum £2 bet here and there to see how the bots react. If there is a one or two tick gap in the spread I might place £2 within the spread to see if the bots are backing or laying. More often than not your £2 is taken within the blink of an eye.
Again, I don't think anyone is getting preferential treatment but that sort of speed suggests some form of low-latency activity. And, as Betfair does not (to my knowledge) permit co-location of private servers within Betfair's data centre then that is probably a Betfair bot snapping up my £2. Not only that but the bot appears to have a quantity in mind that it wants to take. If you fire in multiple £2 bets quickly enough you will sometimes see the amount that the bot would like to back or lay. There will be a fleeting moment where you will see the size of bet used to snap up your £2 and then it will disappear.
For example, if I continuously place a lay bet of £2 in rapid succession on an empty price in the grid and do it fast enough then I will first see maybe £50 hit my £2. The next time I place £2 the bot will jump on it with £48. The following £2 bet will be hit by £46 and so on until the bot has attained the £50 position. Obviously there is someone out there desperate to open a £50 position at that price but they do not want to advertise the fact by leaving a £50 order on the ladder.
Another thing you can do is place your £2 in a large gap that might have developed between backers and layers. Within a split second more volume will be placed on and behind your £2. On thin volume you can place your £2 on an empty price behind the front backs and lays. Again, it will set off a flurry of activity. After a few bets have been taken on either side of the spread you can see the return legs of the bets being placed on the other side of the spread. More often than not these bets are placed in anticipation of movement and bets to be matched in the future.
Finally, about 20 minutes before the race the ladder will suddenly fill with volume a good 10 to 20 ticks either side of the spread. It's not a gradual ramping up of volume. It just appears in a split second. Not only that but the amount of volume (even far away from the spread) is constantly changing. I believe it might have something to do with fixed-odds and/or SP betting but that is not my field of interest so I'll leave that for someone else to work out.
There is a lot of maths going on in Betfair horse race betting exchange and most of it doesn't have anything to do with horses. That is what I find so fascinating about exchange betting; market structure. There is so much more to making money from trading the structure of the market and I enjoy learning about it. I hope you enjoyed this article. I would be interested to hear your thoughts.
