David Pennock, a respected expert in prediction markets and market design, discusses some aspects of BetFair’s new bet-matching logic.
Chris F. Masse March 21st, 2008
Arbitraging bets is the same thing as matching bets. They are equivalent. When someone places a bid at price 10 and someone else places an ask at price 9, there is an “arbitrage” that the exchange eliminates by matching the bets. When the exchange arbs a multi-outcome market, it’s still matching, just in a more complicated way.
Having said that, I now see that perhaps there is something unfair going on. In this new type of matching, Betfair is apparently charging the bettor their full price, rather than giving them the “best available price”. I can see how that is a fundamental change that deserves legitimate criticism. It’s as if in the above example, the exchange charged the buyer 10 and only gave the seller 9, keeping the spread for itself.
This is a great quote from Rab that summarizes nicely IMHO: “betting exchanges should merely be viewed as traditional bookmakers who have taken the decision to minimise risk (as any traditional bookmaker can and often will do) by only taking one bet when they know they can find another punter to take the other side of that bet“.
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[...] Pennock didn’t challenge the bet matching logic. Rather, he objected to the way the bet matching change was implemented — the failure of BetFair to give traders the best available price when it makes a match. As Pennock noted in an earlier comment, the matching method itself is improved. The difference between the bet matching logic and the prices at which the matches are made will become important with BetFair wants to re-introduce the service, or more importantly, when BetFair wants to explain the re-introduced service. My hope is that they re-introduce the “same old” improved bet matching logic, but they include a new capability of matching at the best available price.
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Previously:
- BetFair’s new bet-matching logic + BetFair Malta’s trading on the multiples
- Exchanges & Markets , Market Designs , Market Trading , Market Transaction Costs , Mechanism Designs
- Comments(4)
It probably pays to be careful in your language Chris, particularly in what is obviously an important issue to many traders. Contrary to your sensationalist title, Pennock didn’t challenge the bet matching logic. Rather, he objected to the way the bet matching change was implemented — the failure of BetFair to give traders the best available price when it makes a match.
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As Pennock noted in an earlier comment, the matching method itself is improved.
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The difference between the bet matching logic and the prices at which the matches are made will become important with BetFair wants to re-introduce the service, or more importantly, when BetFair wants to explain the re-introduced service. My hope is that they re-introduce the "same old" improved bet matching logic, but they include a new capability of matching at the best available price.
Dear Mike,
There is surely no need for you to "hope"? I think this release from Betfair explicity states what it is that they intend to do, following their most recent climbdown;
" We’ve been trialling a new process for matching customer bets recently which has prompted considerable debate among some of our customers. Some of that debate has been misinformed and we apologise for that. It is clearly our responsibility to ensure customers are given a clear understanding of what we are actually doing and, hopefully, this comprehensive communication and the forum Q&A today will help explain what is happening.
The purpose of the recent change is to increase a customer’s chance of getting a bet matched. However, we recognise that the change we’ve made has been the subject of concern for some customers. In response to customer feedback, we will suspend matching bets across selections when an applicable market is turned in-play. For the time being, bets will be matched on in-play markets as they were prior to the change. Matching across selections will be reintroduced only when we can offer best execution or its equivalent. As we have explained before, the new bet matching process does not affect any Horse Racing markets.
Until recently Betfair’s bet matching process would only look to match customer back bets against lay bets on the same selection in the same market. There are often circumstances where we could improve on that, for example, where we have customer back bet requests on all selections but no suitable lay bets to match them against.
In the past those requests would have been initially unmatched, and may or may not have been subsequently matched by other customers. When Betfair first started, we used to perform this additional cross-matching service for customers. This was suspended in 2002 for purely technical reasons – we didn’t have a mechanism for matching across selections without having a negative impact on the performance of the site.
Betfair’s bet matching process is now more efficient and that allows us to reintroduce this functionality. Whilst leaving the existing logic that matches backs vs. lays unchanged, we’ve added functionality that matches bets across runners ONLY if those bets could not have been matched conventionally. At the moment, that doesn’t give us the option of providing a price improvement even where this would be theoretically possible. This is because matching across selections only happens after the conventional matching process that allows us to improve prices has completed.
We are working towards having a bet matching process in place that both allows customers to see the best prices they could have a bet cross-matched at, and to provide a price improvement where this is possible. However, that’s technically much more complex because it requires significant changes to the process that matches backs vs. lays. Understandably, before we could implement that there’s also a significant amount of testing required, both to ensure that the functionality works as expected and to ensure that the performance of the site isn’t affected, and this is taking longer than anticipated.
Clearly if bets are matched where a price improvement would theoretically be possible, but which the current process can’t provide, then matching those bets will result in Betfair accruing the difference. There’s been speculation that the motivation for the change is the short-term additional revenue for Betfair that not being able to provide price improvements would cause. That isn’t the case. The model for Betfair’s betting exchange remains to match customer bets where possible, to provide price improvements where possible, and to charge a commission on winning positions. The motivation for introducing this change is to make it easier for customers to get bets matched, and to reduce the load on the site by making it pointless for customers who use automated tools to bombard the site with traffic looking for arbitrage opportunities.
However, because we’re not currently in a position where we can improve prices when matching across selections, and to clearly demonstrate that the motivation for the change is to improve customers’ chances of having bets matched rather than any short-term profit, we’ve decided to make the following changes:
1. We have suspended, with immediate effect, matching bets across selections for in-play markets until best execution – or its equivalent – can be implemented.
2. We will shortly reintroduce bet matching across selections but ONLY where bets have been requested at prices that we couldn’t improve even if best execution was in place.
e.g. if a customer requests 2.0 to back a tennis player, and another requests 2.0 to match his opponent we will match those bets. However if we have customer requests to back those two players at 1.99 and 2.0 respectively we will not match them. Those bets will remain unmatched.
3. In the near future we will introduce functionality that both displays prices that could be matched across selections and matches them providing a price improvement wherever possible.
In every case, we will communicate any proposed change in advance of it being introduced onto the site.
Your feedback on this issue has been much appreciated and we continue to welcome your comments via the forum, our helpdesk or directly with members of our staff.
While the forum Q&A is to answer questions specifically related to this topic we will hold regular forum Q&A sessions covering a much wider range of topics in the very near future."
Rab,
FYI, I did re-publish that BetFair statement, by the way, there:
http://www.midasoracle.org/200.....g-logic-4/
[...] I have concluded that their market designers are not competent enough, and that their P.R. managers don’t compute the prediction market approach and the Internet [...]