A few years back I wrote a couple of pages that have proven very popular, the hits run into the tens of thousands. On reading them back I think I can make a better job of those pages. So here goes………
Let’s start by asking why does it even matter if we know how a book works? A book is fundamental to understanding how and why odds move. Which is a “biggy” if you are trying to make money from a betting exchange market!
How a “book” is constructed.
We see odds displayed differently. Nowadays I think more of us grasp the difference between the conventional bookmakers 2/1 and 15/8 and the exchanges 3.0 and 2.88. The conversion is a simple calculation. Let’s do 15/8
15 divided by 8 + 1 = 2.875 rounded up 2.88
The next job is to convert this to its implied chance of winning. This calculation is 100/decimal odds or 100 divided by 2.88 = 34.72%. IF the book is efficient, i.e very close Betfair, it runs at about 99.8% accurate over a 5 year period I believe.
If you then take all the runners and their implied percentage chance of success and total them up, that figure gives you the book total percentage. All of the 3rd party Apps will do this automatically for you.
The Over Round / Under Round
If we take the implied percentage of every runner we arrive at an overall percentage of the book. As Betfair runs an algorithm that does not let the book go over or under round That is the back part of the book cannot go under 100% and the Lay part over 100%.
Let’s assume the back book is at 99%. If you distributed your staking correctly, you could back every runner in the race with £99 and return £100. A 1% profit whatever the result. On the other side of the book sat at 101% you could Lay every runner (staked correctly) to return £100 at a cost of £99. Again a 1% margin of profit.
Under Round – The BACK part of the book is UNDER 100%
Over Round – The LAY part of the book is OVER 100%
As I said earlier, the Betfair Cross matching or XM algorithm will stop this happening and will adjust the prices within the book to compensate.
How can this information be used?
If you are involved in a trade and the odds start to move against you, basically, there are 2 reasons. The first is that your runner is being opposed. That is if you backed it, others are shortening in price. Or if you layed it others are drifting in price.
The second reason is there is sufficient room within the book for your runner’s odds to move, but without triggering the XM algorithm. This is just the ebb and flow of the market.
I advise never to exit your trade without a reason. That reason is “Do the conditions that were present in the market when you opened your trade still exist?” If so why exit? If they have deteriorated, then think about exiting your trade.
What I would say to you all is if you want to integrate this thinking into your trading, don’t think for one second that you can use this information to predict which odds will move and what runners. Understanding how a book works is good knowledge to have. But it isn’t high in the skills you need.
I have tried to write this is as simple terms as possible. I could write for hours and hours about this subject. But it would become over-complex and frankly downright confusing!!!
Below you will find a video to complement this article. Cheers Steve