5 ms·

How a sports betting hedge fund works

30 points by nsoonhui 16y ago

limmeau 16y ago
So they simply bet on sports results after thoroughly researching the odds? Where is the hedging in that?
- andrew1 16y ago
  The term 'hedge fund' is used much more loosely these days. There's no requirement that a hedge fund be hedged against anything.
  - p0ckets 16y ago
    It would be hedging if a team owner to bet against his own team.
    - tome 16y ago
      Technically, yes, but it would also be highly illegal!
- seanos 16y ago
  You can short a bet (known as a laying) as well as go long (known as backing).
- greyman 16y ago
  It works like this: for example, you bet before the football match that the result will NOT be a draw. Then, when favourite scores a goal, you can place a second bet, this time you bet that it WILL be a draw. But after the favourite scored a goal, the odds for draw moved up (since it is now less likely that the game ends in a draw). So no matter what will be the result, you win (it's exactly the same principle as with stock trading or forex, where you sell when the price is high or buy when the price is low). Of course, it might happen that as the match going on, the draw is more and more likely, so the odds for a draw is getting lower. Then at some time, the trader can still bet on a draw (like in the first example), but this time he will have a loss, but a lot lower loss as if he would place just only one bet and lost. And that's I think is called hedging, you bet on all outcomes in different time points.
  - limmeau 16y ago
    Thanks. That was what I was looking for in the article.
  - andrew1 16y ago
    The process you've described isn't really hedging, it's effectively closing out a trade, either through booking a profit, or mitigating a loss. The equivalent in the equities world is roughly these two cases; today you buy some shares in Acme Oil Company, tomorrow they announce that they've discovered a massive oil well and their share price rockets, so you sell and book a nice profit; or today you buy some shares in Acme Oil Co, tomorrow they announce they've sprung a leak off the coast of Florida and their share price falls, you sell your shares to mitigate the losses you've suffered (and the potential for more losses). That is not hedging; hedging is the process of considering (at the point of purchase) how you can protect your investment against unquantified events. For example you might decide that Apple as a company is undervalued so you want to buy some of their shares, but the markets seem volatile at the moment so you want to hedge yourself against large movements in the index. You can do this by selling short on the index at the same time as you buy your Apple shares. So suppose you're correct about Apple (that they're undervalued) and the market realises this and their share price increases by 1% relative to the index, without your hedge this could see your investment say gain 4% if the index goes up 3%, or lose 2% if the index falls by 3%, so you get either +4% or -2%. Now suppose that you have your index hedge in place, if the market rises by 3%, you get 4% on Apple -3% on the index = 1%, if the market falls by 3% you get -2% on Apple and 3% on the index = 1%. So either way you get the 1% profit through your Apple intuition. By selling the index you've hedged yourself against movements in the underlying market. So to hedge a bet on something like Roger Federer winning against Rafael Nadal in a match today, you need to try and find something else to bet on at the same time. I can't really think of how to do this though.
- adw 16y ago
  http://vimeo.com/8995197 http://vimeo.com/8995197 (done in 2006, so a little dated). Disclaimer - Sean Park is one of our investors.
seanos 16y ago
Betfair has an api, http://bdp.betfair.com/ http://bdp.betfair.com/, if you're interested in writing your own trading bot - although the free version doesn't allow you to place bets.
- russss 16y ago
  Yes it does, but it limits you to 100 per minute. (http://bdp.betfair.com/index.php?option=com_content&task=view&id=36&Itemid=64 http://bdp.betfair.com/index.php?option=com_content&task...) We (http://www.smarkets.com http://www.smarkets.com) are about to launch our own free RESTful trading API.
  - seanos 16y ago
    Thanks for the correction. How do you plan to compete with Betfair?
    - russss 16y ago
      We want to make betting on a betting exchange easier to understand for the average punter. Loads of people (at least in the UK) still use high-street bookmakers with bad odds. Betfair is a bit of a mess (don't view source if you value your sanity).
  - zackattack 16y ago
    1) Is it legal for me, as a US citizen, to use your product? If it's not, are there any alternatives available? 2) When will the RESTful API be available? Can you email me when it's ready?
    - russss 16y ago
      I don't think it's an offence for a US citizen to gamble over the internet, but it's not legal for us as a betting exchange licensed in Malta to let you use our product. So you can register on Smarkets, but you won't be able to deposit from a US IP or a US credit card. Also the Smarkets founders are US citizens and they'd quite like not to get arrested when they go back home. For API news, follow our blog: http://blog.smarkets.com/ http://blog.smarkets.com/
jrockway 16y ago
The legality of betting is interesting. Why is it illegal to financially speculate on the outcome of sports games? Why is it illegal to pay someone to play badly? I can see how sports leagues would prohibit the latter, but I don't see how the Federal government has the authority to control that. As long as you pay taxes, I don't see a problem for society. (Except that professional sports would suck, but that's not the government's problem.)
- greyman 16y ago
  I think the reason is that you can launder money this way. What is also interesting to me is why the internet betting is prohibited in USA, but buying stock or forex trading is not prohibited. So you can't bet on sport outcome, but you can bet on companies stock prices or currency fluctuations.
  - russss 16y ago
    Money laundering is a big problem for betting exchanges, but it's not an unsolvable problem. Countries that issue betting exchange licenses generally have very tight anti-money laundering requirements.
- roel_v 16y ago
  The main reason betting itself is illegal is for moral reasons. In many societies, betting is considered a vice just like drinking alcohol, presumably because of its non-serious nature and the general atmosphere of lewdness that usually surrounds it. Apart from that, the addictive aspect of gambling is in many places a major argument to prohibit or severely restrict gambling. As to why paying someone to play badly is illegal, it's because the information asymmetry distorts 'normal' trade relations. It's a consumer protection mechanism. Of course it could be dealt with by a civil claim, but that may not have enough of a deterrent effect. Sports leagues don't have much power in this matter. They can only influence the player being bought off, not the one paying the player.
  - arethuza 16y ago
    While in other societies drinking alcohol is not considered a vice, speculating on the outcome of sporting events is considered a relatively harmless pastime and "gambling" on arcane financial events (and the associated lewd behavior) is considered by most to be immoral when those who benefited get bailed out with taxpayers money.
yummyfajitas 16y ago
It's absolutely untrue that Galileo is the first sports betting fund. There are quite a few market makers on Betfair.
- bayes 16y ago
  But I would imagine a lot of those market makers are betting their own money. This is a fund i.e. they're betting other people's money. I won't be investing!

30 points by nsoonhui 16y ago

limmeau 16y ago

So they simply bet on sports results after thoroughly researching the odds? Where is the hedging in that?

andrew1 16y ago
The term 'hedge fund' is used much more loosely these days. There's no requirement that a hedge fund be hedged against anything.
- p0ckets 16y ago
  It would be hedging if a team owner to bet against his own team.
  - tome 16y ago
    Technically, yes, but it would also be highly illegal!
seanos 16y ago
You can short a bet (known as a laying) as well as go long (known as backing).
greyman 16y ago
It works like this: for example, you bet before the football match that the result will NOT be a draw. Then, when favourite scores a goal, you can place a second bet, this time you bet that it WILL be a draw. But after the favourite scored a goal, the odds for draw moved up (since it is now less likely that the game ends in a draw). So no matter what will be the result, you win (it's exactly the same principle as with stock trading or forex, where you sell when the price is high or buy when the price is low). Of course, it might happen that as the match going on, the draw is more and more likely, so the odds for a draw is getting lower. Then at some time, the trader can still bet on a draw (like in the first example), but this time he will have a loss, but a lot lower loss as if he would place just only one bet and lost. And that's I think is called hedging, you bet on all outcomes in different time points.
- limmeau 16y ago
  Thanks. That was what I was looking for in the article.
- andrew1 16y ago
  The process you've described isn't really hedging, it's effectively closing out a trade, either through booking a profit, or mitigating a loss. The equivalent in the equities world is roughly these two cases; today you buy some shares in Acme Oil Company, tomorrow they announce that they've discovered a massive oil well and their share price rockets, so you sell and book a nice profit; or today you buy some shares in Acme Oil Co, tomorrow they announce they've sprung a leak off the coast of Florida and their share price falls, you sell your shares to mitigate the losses you've suffered (and the potential for more losses). That is not hedging; hedging is the process of considering (at the point of purchase) how you can protect your investment against unquantified events. For example you might decide that Apple as a company is undervalued so you want to buy some of their shares, but the markets seem volatile at the moment so you want to hedge yourself against large movements in the index. You can do this by selling short on the index at the same time as you buy your Apple shares. So suppose you're correct about Apple (that they're undervalued) and the market realises this and their share price increases by 1% relative to the index, without your hedge this could see your investment say gain 4% if the index goes up 3%, or lose 2% if the index falls by 3%, so you get either +4% or -2%. Now suppose that you have your index hedge in place, if the market rises by 3%, you get 4% on Apple -3% on the index = 1%, if the market falls by 3% you get -2% on Apple and 3% on the index = 1%. So either way you get the 1% profit through your Apple intuition. By selling the index you've hedged yourself against movements in the underlying market. So to hedge a bet on something like Roger Federer winning against Rafael Nadal in a match today, you need to try and find something else to bet on at the same time. I can't really think of how to do this though.
adw 16y ago
http://vimeo.com/8995197 http://vimeo.com/8995197 (done in 2006, so a little dated). Disclaimer - Sean Park is one of our investors.

seanos 16y ago

Betfair has an api, http://bdp.betfair.com/ http://bdp.betfair.com/, if you're interested in writing your own trading bot - although the free version doesn't allow you to place bets.

russss 16y ago
Yes it does, but it limits you to 100 per minute. (http://bdp.betfair.com/index.php?option=com_content&task=view&id=36&Itemid=64 http://bdp.betfair.com/index.php?option=com_content&task...) We (http://www.smarkets.com http://www.smarkets.com) are about to launch our own free RESTful trading API.
- seanos 16y ago
  Thanks for the correction. How do you plan to compete with Betfair?
  - russss 16y ago
    We want to make betting on a betting exchange easier to understand for the average punter. Loads of people (at least in the UK) still use high-street bookmakers with bad odds. Betfair is a bit of a mess (don't view source if you value your sanity).
- zackattack 16y ago
  1) Is it legal for me, as a US citizen, to use your product? If it's not, are there any alternatives available? 2) When will the RESTful API be available? Can you email me when it's ready?
  - russss 16y ago
    I don't think it's an offence for a US citizen to gamble over the internet, but it's not legal for us as a betting exchange licensed in Malta to let you use our product. So you can register on Smarkets, but you won't be able to deposit from a US IP or a US credit card. Also the Smarkets founders are US citizens and they'd quite like not to get arrested when they go back home. For API news, follow our blog: http://blog.smarkets.com/ http://blog.smarkets.com/

jrockway 16y ago

The legality of betting is interesting. Why is it illegal to financially speculate on the outcome of sports games? Why is it illegal to pay someone to play badly? I can see how sports leagues would prohibit the latter, but I don't see how the Federal government has the authority to control that. As long as you pay taxes, I don't see a problem for society. (Except that professional sports would suck, but that's not the government's problem.)

greyman 16y ago
I think the reason is that you can launder money this way. What is also interesting to me is why the internet betting is prohibited in USA, but buying stock or forex trading is not prohibited. So you can't bet on sport outcome, but you can bet on companies stock prices or currency fluctuations.
- russss 16y ago
  Money laundering is a big problem for betting exchanges, but it's not an unsolvable problem. Countries that issue betting exchange licenses generally have very tight anti-money laundering requirements.
roel_v 16y ago
The main reason betting itself is illegal is for moral reasons. In many societies, betting is considered a vice just like drinking alcohol, presumably because of its non-serious nature and the general atmosphere of lewdness that usually surrounds it. Apart from that, the addictive aspect of gambling is in many places a major argument to prohibit or severely restrict gambling. As to why paying someone to play badly is illegal, it's because the information asymmetry distorts 'normal' trade relations. It's a consumer protection mechanism. Of course it could be dealt with by a civil claim, but that may not have enough of a deterrent effect. Sports leagues don't have much power in this matter. They can only influence the player being bought off, not the one paying the player.
- arethuza 16y ago
  While in other societies drinking alcohol is not considered a vice, speculating on the outcome of sporting events is considered a relatively harmless pastime and "gambling" on arcane financial events (and the associated lewd behavior) is considered by most to be immoral when those who benefited get bailed out with taxpayers money.

yummyfajitas 16y ago

It's absolutely untrue that Galileo is the first sports betting fund. There are quite a few market makers on Betfair.

bayes 16y ago
But I would imagine a lot of those market makers are betting their own money. This is a fund i.e. they're betting other people's money. I won't be investing!