What is that causes the volatility in the sports Betting and popular horse racing market before the gun sets the race off? does this affect the true probability of the horse winning is a question that I have been asked recently. There are in fact two questions in here and I shall answer them separately. I will be putting forward some ideas that are not original to me but that are true and that can be hard sometimes to grasp so please bear with me.
Where does the Betfair volatility in the horse racing market come from? As I am sure you have seen when you are watching the horse racing market on Betfair it suddenly goes crazy about ten minutes before the race starts. This is for a number of reasons. Let us start with the first reason, this is that in any market the closer that it gets to the closing time of the market then the more action you are likely to see in it as people do not want to miss getting involved in the market. Why does it happen in this particular market at ten minutes before the off? I have not researched this but the most obvious reason that I can put forward is that horse races in the UK are generally held at around ten minute intervals. This means that everybody who is performing pre-race scalp trading will close their positions around one minute or thirty seconds before the race begins, they then move onto the next race which is ten minutes before it begins. Everybody who is watching the races also move to the next race at the same time. A lot of people use the market movement as a decider as to whether to bet and so by necessity they have to wait until it becomes active to be able to place their bets. These are just some of the reasons and there are more. The main question is how this affects the accuracy of the probability of the horse winning. The betting market provides a very good idea of a horse’s chance of winning. Horses that go off with odds at 4/1 will win on average 20% of their races. This has been researched and proven by many people, it is also known that the closer to the start of the race the more accurate the market gets. This is a benefit of prediction markets and the reasons why are not a topic for a horse racing site. If you are interested then you will find plenty of information on the internet explaining the technical reasons for this. Whatever happens in the Betfair market before the race begins does not affect the accuracy of the prediction of the market. To explain this we need to start with the concept that there is in fact only one correct probability for a horse race. The winner has 100% chance of winning and every other horse in the race has 0% chance of winning. By assigning differing amounts to the horses we are trying to find out which horse is likely to be the 100% and which horses are likely to be the 0%. Any probability that we assign that is not 100% or 0% is not correct. Now here is the bit that always makes people look at me like a mad man, in fact the person who originally told me it said the same thing happens to him. If you can get your head around it though it will greatly benefit your betting. We have established that there is only one correct set of percentages, 100% to the winner and 0% to the rest of the field. This means that when we are assigning many different probabilities to the horses in the race to try and determine this, different people can assign completely different probabilities and they can all be correct. Yes, you did read it right, different odds lines can all be correct. Let me first prove this to be true and then try and explain why. We know that the betting market creates a very accurate probability for the horses. I can also create very accurate probabilities for the horses in a race and yet in most races I can find horses that I disagree with the market on. Historically though my 20% horses win 20% of the time and so does the markets but we have different horses. As you can see it is actually because different odds lines can be correct that we can make a profit from the races. I could get into a long mathematical discussion as to why this happens but I don’t want to bore you. In effect what is happening is that we are analysing the race differently but ultimately I know that my 20% horses will win 20% of the time. When one of my 20% horses is in the markets 10% group then I have a value bet. It is not because my odds are more accurate but because we are disagreeing on which group the horse should be in. His 10% horses will still win 10% of the time but this horse is part of my 20% group which win 20% of the time and so I know that I can bet on it and make long term value.
This can be a very confusing concept to get your head around but when you do you will find that the effort was well worth it and you will begin to look at your bets in a very different way.