Finance

Betfair Trading And The Exponential Growth Of The Exchange

Betfair Trading was a phrase which didn’t exist a decade ago. This is because the concept of sports exchanges didn’t exist. But when one man had the idea of creating a kind of derivative market based out of the enormous global sports markets, the world changed forever for a growing number of sports fans with an eye for charts and trading in general.

It is hardly surprising that this enormous marketplace was destined to become a trading exchange. After all, with the financial crisis of 2008, millions of people suddenly became aware of the concept of derivatives trading. Mortgages were agreed between consumers and banks, as they have always been, but instead of owing the bank the money and paying it off with huge interest over twenty five years or more, instead the banks would sell that debt off to a company dealing in mortgage backed securities, and would then sell those back to consumers indirectly via companies like JP Morgan and Goldman Sachs, who in turn sold them on to pension funds and the like. So this enormous and contrived chain of events ultimately ended with other consumers owning the risk within their pension schemes.

In essence this system was an extremely clever but devious tool to allow banks and major financial firms to continue to benefit from the mortgage industry but without holding onto the risk, instead they kindly hand that back to us, making a tidy middleman fee on the way through! When you look at this system objectively, it seems highly corrupt and unfair, and in many ways it is, but the global growth machine doesn’t care about insignificant things like fairness does it?

Within this huge financial system overhaul, enabling more and more markets to be traded and invested in, new derivatives became tradeable on the stock markets around the world. Corn, wheat, oil, gold all became markets where you could effectively bet on the price going up or down. Even the weather became a derivative commodity. The key difference between investing and trading these kinds of derivatives markets is that you do not need to hold shares, you can just analyse charts and make an educated guess as to the way you think the market price will move, either up or down, and the trading platforms of the world allowed you to place your trades on these outcomes.

Sports markets are gigantic. Some football games have literally millions of pounds being traded on them. There is still risk like any trading method. Instead of just trying to predict the final outcome of a sporting event, you can trade in and out at will using the exchanges like Betfair. This means if you think a team will score a goal early on in a game, but you don’t think they will win the game necessarily, you can ‘trade’ the event. In this case you would back the team you expect to score, and lay that team, i.e. bet against them winning, after they score which provides your tradeout or exit from the market.

In reality, this is no different from trading the price of gold on the derivatives markets. You are not picking a team to win a game. You are buying a derivative or commodity which in this case is the odds of a team winning a game. You buy before the game at a high price, and sell after the goal for a lower price, since their odds will come down after they are in the lead. The skill comes from doing a lot of research into your selections.

Since this concept was invented, Betfair has grown incredibly fast, even attracting people away from financial markets as sports events are often more predictable than financial ones, especially when you consider how easy it is to manipulate the financial markets by a President or Prime Minister making a statement causing markets to tumble or rocket upwards.

Betfair football trading in particular has become the fastest growing market, next to horse racing. This is because of the huge amount of people who want to get involved in the markets thanks to the support both sports have from fans around the world. Trading on Betfair is set to continue its incredibly growth and for many financial traders every month, it provides welcome relief to the volatile stock markets.

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