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I’ve started making some software that determines the probability of something happening and then using betting exchanges to place BACK bets. I do understand the concept of lay bets however what I don’t understand is how to determine/calculate what price they should be.

As an example last nights match:

Hearts V Celtic - BTT - smarkets I concluded there’s a 49% chance of this NOT happening which would give me a decimal of 2.04 to BACK

So with the lay aspect would it not be the opposite = 51% meaning 1.96? Of course you can move these around more to get better value. But I’m baffled as to how some of the lays are priced and why they're priced that way and struggling to find information.

I’ve included screenshot of odds before kickoff on markets from last nights match. 2.02 BACK and 2.16 LAY?

Celtic V Hearts 26-01-22 BTTS

Any help or pointers in the right direction would be massively appreciated.

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The answer depends slightly if this is a traditional bookie or a customer-driven betting exchange, but the simple answer is that people want to make money.

For a traditional bookie, they make money via their spread (or vigorish in American parlance): their fractional odds will not add up to 1.0 exactly and so they make money whatever the outcome of the bet. Despite the common belief, bookies do not set their odds to reflect their belief in what the outcome of the bet will be, but to try to ensure they have equal exposure to either side of a bet as they are then guaranteed to make money equal to their spread.

For a betting exchange, much the same thing applies, but is driven by what customers are prepared to offer. If the fractional odds did add up to 1.0, there would be no real opportunity for profit, particularly after the market has taken its cut.

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  • Understood on the bookies. However, I expected the exchanges to be closer to the probability, but as you say it's about the prices people will take. Can you recommend any kind of formula or pricing strategy or is it a case of "calculating the probability and add some more"?
    – webknit
    Jan 27 at 9:55
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    To some extent, you're thinking about this the wrong way. Unless you're putting enough money into the market to actually move the odds, the question is whether you're prepared to accept the reward vs risk which is available at the price the market has set.
    – Philip Kendall
    Jan 27 at 10:50

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