In this post I am going to look at the key differences between Betfair trading and financial trading. I will do this with an emphasis on both football trading at Betfair and stocks and shares trading in the financial world (as this is where I have the most experience myself).
Rather bizarrely, I myself actually started trading Golf on Betfair all the way back in 2006! Back then Betfair trading was very much a niche pursuit and quite different to what it is today, there wasn't too much helpful information about it on the web, there wasn’t really any serious trading software available and there certainly wasn't any “cash out” button knocking around either (back then I had to use a spreadsheet to help me do the maths!)
My main aim with this post is not just to simply list the differences between Betfair and financial trading, but, to an extent, take into account my own trading experiences from my own journey and shed some insight on the pros and cons of each (and how you can and should make the best of both worlds).
What is Trading (and what it is not)?
Let’s start this post off by reminding ourselves what trading actually is, in essence, it is simply buying something at one price and then selling it on at another. For instance, we could back a football team to win at one price and then lay the same team after they score a goal, we could buy some shares at £1 and then sell them on at £2, we could even buy a box of 100 oranges for £10 and then sell them on at 30p each!
The main point here is that trading, in itself, is simply a mechanism which involves getting into a trading instrument at one price and out at another price (hopefully making a profit along the way). This could be a variety of things, like I said above, everything form backing football teams and then laying them after a goal, buying and selling shares through to even selling oranges could be reasonably considered trading!
Trading isn’t (in my opinion at least) a form of gambling! For example, if you have a feeling Man City are going to win their next match and you stick £20 on them with this reasoning in mind, in this case this is an example of gambling. Likewise, if you think Man City will be strong in their next match and score early, then you research and pick a good price to lay the draw at in the early stages of the game (and trade out again after such a goal), then this is not gambling, but instead, trading!
Gambling is simply guessing what will happen for entertainment purposes, trading, on the other hand, is executing a well researched plan whilst managing the risk to your capital throughout!
Likewise, trading isn’t the same thing as investing either, although the definitions between the two can become somewhat blurry here, especially given one of the main investing criterion for many will involve capital appreciation over time. for example, if I put £20k into an income generating fund in my ISA, then my main reasoning might be for it to deliver me an income stream over the coming years. If I then sell these fund units 2 years later (for a profit) then this could be considered a trade (even though it wasn't my main aim AND I would have expected a small capital appreciation anyway).
Like I said, the lines between trading and investing can be blurry and will always be somewhat subjective, the point here being that trading is the art of applying knowledge, executing a strategy and (crucially) getting in and then getting out again. If you get in and hold long term (e.g. shares) then you are probably investing and likewise, chancing you luck and hoping for a win makes you more of a gambler (in my book at least).
The Pros of Trading Shares vs Betfair?
In this section I’m going to look at some of the advantages of trading stocks and shares over Betfair! I don’t intend this to be an exhaustive list but instead a take from my own experience over many years of switching between the two!
1) Stocks and Shares don't Expire
I have already (partially) eluded to this somewhat, but one of the biggest advantages of trading shares is that they don't have an expiry date! In other words, once I own some shares in my own name I can hold onto them for as long as I like (providing the company doesn't go bankrupt, get bought out etc.). This means if my “trade” in some shares doesn’t quite go as planned, I always have the option of holding on to them for the longer term (and potentially collecting dividends along the way).
In direct contrast to this, any trades made on Betfair will have an end date associated with them (this could range from a few minutes for a football match through to many months or even years for, say, the next US president markets). For example, if I open a trade on a football match (e.g. lay the draw) then the maximum time I can hold my position for is until the end of said football match itself (at which point it will no longer exist, winner or otherwise).
Now, whilst there are certainly some advantages to this time limit (in that it forces you to act), it also means you don’t have the same flexibility to make decisions with as you do when trading shares. I myself (and I know others have the same issue) often go into share trading and initially struggle to sell their shares at the right time, often waiting too long only to watch them go all the way back down again and then panic selling for a small loss! Trading football on Betfair, thanks to this time expiry will (hopefully) force many a trader out of such “wait and see!” behaviour!
2) Stocks and Shares Trading is much More Established
Whilst some people (myself included) wont really care about this aspect too much, it is very fair to say that shares represent a much older and better understood form of trading than, say, trading football on Betfair might.
In other words, if you go into trading shares you will find lots of resources to help you, lots of companies to trade with and will deal with a very safe and well regulated system in doing so. This doesn’t necessary mean you will definitely make money but the support is there and, as such, so is a framework to develop your trading skills within.
On the other hand, trading on Betfair is relatively new by comparison (Betfair themselves were only formed in the year 2000). This means that (generally speaking) Betfair trading is much less understood as a form of trading and with that the supply of good trading materials and available companies to trade with (the exchanges basically) is still somewhat limited, even today!
3) Stocks and Shares can have Much More Potential
One of the biggest limitations of Betfair trading is that you need someone (or multiple people) on the other side of your trade in order to make it happen (remember, on a betting exchange there is no bookmaker laying your bet but instead another exchange user with an opposing view).
Whilst this (generally speaking) isn't an issue on big events such as games within mainstream football leagues etc. this characteristic of exchange trading can rear itself when trying to trade more obscure markets and less popular events alike (e.g. you might find there is very little money available in an obscure market such as Over / Under 4.5 goals in a lower league football game on a weekday afternoon!).
In contrast to this, when trading stocks and shares, there is much less of an issue here (generally speaking, for the average person, there will never be an issue in buying as many shares as you want). Having said this, if you do start looking at trading much smaller companies (such as those on the AIM exchange) or, you want to start trading in the millions of pounds at a time (which is quite rare for a private investor) then there might be some issues arise in fulfilling your trades (but this wont affect the vast majority of people so I wouldn't worry about this for now!).
One of the other big advantages with share trading is that there is no real limit to how much your trade can earn (assuming you aren’t too strict with selling points or snatching small profits). For example, you could hold some shares and then, out of the blue, another company announces they want to buy said company and will pay a very generous price for the privilege, much more than you might have been aiming to make originally (I myself have had shares virtually double up overnight based on this happening, very happy days!).
We also need to factor in, even if you don’t necessarily aim for them, that dividends are always a welcome bonus when trading shares if and when they come, something you will never see when trading football on Betfair!
The Pros of Trading Betfair vs Shares?
In this section I’m going to look at some of the advantages of trading Betfair vs Stocks and shares! As before this inst aiming to be some kind of boring list but based upon my own experiences of the two.
1) Less Exposure to external Forces
One of the first (really big) disadvantages to trading shares is that, no matter how good your share picking ability is, you will always be exposed to external market forces. For example, if you analyse some shares, pick a good entry point and then buy said shares at that point, you could still find yourself losing a lot of money due to other market forces which are in play! This could be, for example poor data on unemployment, inflation, economic growth or a myriad of other economic factors which go on to pull the entire market down, sometimes for months at a time!
Of course, even if you trade is fundamentally sound (i.e. you research shows the company you have bought are a good bet) there is little you can do but get swept up in such market forces, potentially forcing a sale at a loss or you having to keep your capital locked into your trade for a long time before you can realise your profits!
In contrast to this, when trading on Betfair, it is good to know that all events are usually independent from one another. For example, if a team announce that there star player wont be playing then this could cause said team to drift up in terms of their odds, what it wont do is affect any of the other games being played that same day as there is often no link whatsoever between the different events (on any given day at least).
As a result of the above, Betfair trading allows traders to be much more focused on the individual event at hand and concentrate more on the mechanics of executing a trade (versus your financial trader who might not trade at all for weeks when there is a lot of market uncertainty).
2) Lower Fees
Another big advantage to trading Betfair versus trading shares (traditionally at least) is that Betfair often involves much lower fees being due (and none at all if you take a loss on any given market). Depending upon what “rewards” level you have set on your Betfair account, these commissions (or fees) could be as little as 2% on your profit for on any given market.
This is in direct contrast to trading shares which often incurs relatively high trading fees, account management fees (plus the deeded stamp duty on top of every purchase). Although these trading commission become much cheaper (as a percent) the more your trades are worth (and many brokers will give regular traders discounts) they can still be very high for newer traders.
However, having said all of this…..
Firstly, there are other betting exchanges now available which have potentially lower fees than Betfair, this includes Smarkets and Matchbook amongst others. One of the things these newer exchanges also seem to have is more promotional activity on the exchange commission, this means with a bit of careful planning you could (quite easily) be paying 0% commission on your trades. The down side here is (of course) they often feature less developed markets with less liquidity than is available on Betfair, so trading with certain strategies might become much more difficult in some circumstances.
It also needs to be pointed out that, in the last few years at least, we have also seen the raise of 0% commission financial trading services (including the excellent Trading212). Whilst these competitors are often “app first” and new to the game themselves, they do at least help bring the cost of share trading right down for the average trader (although they do bring their own, completely new risks as I discussed in this post a couple of years ago).
NB – Even if you do use a 0% commission share trading service you will still have to pay the 0.5% stamp duty!
3) More Transparent Markets
One of the biggest issues with trading shares (as mentioned above) is that your trades can be subject to a lot of market conditions which might be hard (or impossible) to predict. Furthermore, as a retail trader you will most likely find it difficult (and expensive thanks to premium news sites) to stay on top of what is happening in the market in a timely manor.
On top of this, the “market” itself will be hidden when trading stocks and shares, this thanks to something called “level 2 access” whereby to actually view the order book you usually must pay a monthly fee in return for access (usually referred to as “level 2 access”).
Betfair trading, on the other hand, is more transparent! In fact, once an event has started it is plain for anyone to see, for example, how teams are performing and how a game is unravelling in real time.
NB – I’m not referring to “court siding” here, whereby people at an event itself take advantage of the delays in TV signals and the reporting of scores electronically, I am talking about the event and teams in general here.
Add into this that, without any additional fees or special software, any Betfair user can easily see the Betfair order book, see what money is available and at what price and (ultimately) put their own orders in at any price they like, whenever they like (something only realistically available to big institutions when looking at the stock market).
As such, in my opinion at least, I find it much easier to trade a Betfair market over the short term thank to this increased visibility on offer, both from the event itself and also thanks to the direct transparency of the Betfair order book.
The Dynamics Between Trading Betfair and Financial Trading?
So far in this post, I have pointed out some of the big differences between trading sports on Betfair and shares on the stock markets. In many ways such trading is very similar, but, as is discussed above, they can differ in some key areas.
Speaking of my own experience, as someone who has started with Betfair trading, moved on to share trading and then (eventually) onto both, I think there is a high degree of value in learning to trade in both of these areas.
Betfair trading will undoubtedly force you to think about strategies in more detail and execute them to perfection (thanks to the time expiry factors which will always be in play). Betfair is also a good tool for learning to analyse the order book, look at what money is been matched and learn to take advantage of such information by optimising your entry and exit points for any given trade.
Share trading, on the other hand, affords you a lot less information over you investments and can leave you vulnerable to market forces which (for an inexperienced trader) could lead to panic selling and over trading thus inuring lots of trading fees (which might well kill any profits you do make). Having said this, on the positive side you do have more time to think when investing in shares, do have nice bonuses form time to time (takeovers, dividends etc.) and can turn trades into long term positions (or visa versa) should market conditions change.
These points above are just opinions based upon my own 15+ years of trading both stocks and shares and Betfair, for the most part side-by-side. I personally feel that becoming a successful trader involves exposing yourself to many different markets and deploying (whilst constantly refining) many different strategies to see what works for you and then building upon that.
Ultimately, trading is about patience and which ever route you go you will have to master this! With Betfair trading the time expiry factor will force you into executing trades in a timely manor and managing risk on a macro level. Complimenting this, share trading will both force you to evaluate the bigger picture regarding the full potential of any given instrument as well as teach you how to deal with events out of your control such as market crashes!
Either way, combine the two I would say, specialisation should come much later on in your trading career, NOT at the beginning!
I hope you have found this article interesting, I like to break away from the hum-drum (and quite frankly boring) football trading content you see littered across the web and deliver opinions you probably wont find else ware!
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