Making Money on Betfair - Part 1 - Market Inaccuracies

There are essentially two ways to make money on Betfair. Today’s post is going to focus on profiting from market inaccuracies. The other set of strategies involves profiting from market inefficiencies, and will be covered in a later post.  

Profiting from market inaccuracies involves developing a strategy based on fundamental analysis of outcomes, which (often through the development of a statistical model) you can use to determine whether the probabilities implied by betting markets are accurate. You profit from the difference between the market probabilities and the more accurate model probabilities (minus any commissions paid).

These models could be complex, like building a multi-factor model to determine the winner of a football match based on any number of variables, or much more simple.

These strategies can require a reasonable amount of math (and often rely on data that can be difficult to obtain), although there are many simpler versions of this type of strategy that can be back-tested more easily.

For example, some people are of the opinion that the markets systematically overprice favourites in some sports, others believe that on halftime/fulltime options, the market misprices the probability of the home-side starting well (and leading at halftime) before being eventually run down and losing. I know someone who believed that Betfair markets systematically overpriced the probability of favourites beating the quarter-time spread in NBA matches.

The possibilities are endless. But remember, these strategies should not be based of hunches, they need to be analysed over extended periods of time to determine whether:

i) there really is a systematic mispricing

ii) if there is, is this mispricing significant enough to cover the Betfair commissions you’ll have to pay.

Point ii) can mean that some strategies are only marginally profitable when dealing with small bets but increase their profitability (in both a relative and absolute sense) as you bet more and your average commission decreases.

So, let’s discuss. Have you developed any strategies, or even any preliminary ideas for strategies, in particular markets?