One trader’s view on BetFair’s new bet-matching logic

He/She LOVES it!!!!!

POLL: should betfair keep the new bet matching logic WITH BEST EXECUTION ?

- K J J – 17 Mar 17:48

I say YES.

Such a system has been long overdue. Say for example, in a market (with now withdrawals) with two runners and one winer, backing Runner A at 1.5 is precisely equivalent to laying Runner B at 3.0, backing A at 2.0 is equivalent to laying B at 2.0.

In tennis this is especially important. How often is one faced with the very frustrating situation when your lay at 2.0 of A comes back unmatched, only for you to see a back of player B at 2.0 for an equivalent/larger volume.

I am going to use a simple example to illustrate.Two runners, with Runner A available to back at 1.38 and lay at 1.45, an Runner B has little liquidity, say backable at 2.5 and layable at 5.0

Now, person 1 (m1) backs A at 1.4 for £1000, comes back unmatched, and keeps his bet on the exchange waiting to be matched.

Then person 2 (m2) backs B at 3.0 for £100.

Now, there are 3 possibilities:

1) the old system which has been in place for years: m2′s back of B comes back unmatched at 3.0 and an overround is created. m2 either realises immediately he can get a better price, cancels his back of at B at 3.0, and lays A at 1.4 instead, or he fails to realise and his back of B is matched by the fastest finger or user-operated arbing bot.

2) The new system without best execution: Betfair superbot lays m2′s £100 back of B at 3.0, and simultaneously lays part of m1′s back of A at 1.4 (the superbot can lay, for example, £214.29 of A at 1.4 to give betfair an instant risk-free profit of £14.29, or any amount between £200 and £250 to give betfair an instant risk-free profit)

3) New system with best execution: m2 is matched at 3.5 on B, m1 has £250 of his back of A matched at 1.4.

Taking m1 and m2 – betfair’s customers – as the set of people whose interests we wish to satisfy, (3) is clearly the best system – it is the PARETO OPTIMAL system since under (3), we cannot make either m1 or m2 better off without making the other worse off.

System 1 is not Pareto efficient because both m1 and m2 could be made better off – m1 could be made better off by having his bet matched as quickly as possible, and m2 by having his bet matched instantly at a better price than requested.

System 2 is not Pareto efficient because m2 could be made better off without making m1 worse off. m2 could be made better of by getting a better price than requested (3.5 instead of 3.0) without making m1 worse off.

So vote for PARETO OPTIMALITY, vote for SYSTEM 3 – THE NEW MATCHING LOGIC WITH BEST EXECUTION.