Original from Contrarian:

FAFH,

Take the example of a fair coin toss.

Suppose I am on 5% commission, and I can back heads for 2.04. If I don't green up, my expected return per toss is:

= (0.5 * 1.04 * STAKE * 0.95) - (0.5 * STAKE)
= -0.006 * STAKE.

Despite backing at value, my 5% commission means that I lose 0.6% of my stake each toss.


However, if I green up at evens just before the coin is flipped, my expected return is:

= (0.5 * ((1.04 * STAKE) - STAKE)) * 0.95
= 0.019 * STAKE.

And even if I lay off my bet at 2.02 before the coin is flipped, my expected return is positive:

= (0.5 * ((1.04 * STAKE) - (1.02 * STAKE)) * 0.95
= 0.0095 * STAKE.

I have a couple of questions please. With the first calculation above assuming 5% commission, where you have the 1.04 in the first line, how do you work the calculation if the odds are laying below "correct" price, ie at a value price).
for example, lets say instead of getting 2.04 on a coin toss which should be 2.00, you are laying 1.53 when you "know" the correct price to be 1.54.
I know odds of 1.53 on here imply a 65.5% chance of winning. Clearly, laying 1.53 and immediately backing 1.54 ( the "correct" price ) would be profitable, but lets say a market changing event occurs, a goal is scored for example. The 1.54 becomes 2.6 lets say.

Now if you were to have layed the 1.53 at value, and back back for a loss at the new CORRECT price of 2.6, thus redding out, would you still be profitable long term, assuming the 2.6 is the fair price of the event now occuring. I know you would lose THIS TIME, but long term what would be the outcome. ie: you backed the coin toss at 2.04, and then the coin was tossed...the coin is now spinning in the air...the coin is about to fall over and leaning like it looks like its about to come up tails!! (bare with me!)...correct price for tails is now 1.54....would greening/redding out at a second price be enough long term if that second price is an accurate reflection of the outcome?. You have got the value the first time, but the market has changed dramatically, however the new price is efficient.
I hope you can understand what i'm trying to say! thanks

MissingRibofPrince,

The answer to your question, "would you still be profitable if you were greening/redding out following significant market moves (eg. after a goal) is, it depends on how much of a value bet you got in the first place, what your commission rate is, and how much the market has moved.

In the simplest case (like my coin one) where you manage to back at value, and then lay off at fair price, with the underlying probability unchanged, obviously even the slightest bit of initial value is sufficient to guarantee a long-term positive expectation, no matter what rate of commission you are paying. In this case, your returns each time are perfectly even (and positive), and the total commission paid is always just a fraction of the profit.

However, if you were laying off following a change in the underlying probability (eg. following a goal), there will be significant variation in your returns - sometimes you will have relatively large profits, and others large losses, and it is possible that the total commission paid will eat into the profit, such that the overall strategy becomes unprofitable. As I say, this will total depend on how much the market moves (and therefore how much variation in the returns there is) and how much commission you are paying.

I used to seed the Exchange Games, and the maths I had to do there was very illuminating in terms of greening up.

Essentially, to beat commission you need the odds movements (in the case of Exchange Games this was after each round) to be sufficiently small that your profit or loss wasn't too big before you were able to square off. Success was dependent on expected profit exceeding expected commission. In that sense the first bet you struck was always EV- if you factored in commission (a back of a 4.0 shot at 4.02 for example)

Needless to say, margins were wafer thin.

Thanks for the answer Contrarian. My general approach to this site has been betting when i feel the price to back or lay is incorrect,as i'm sure that approach is with most people. If i find this is the case in a market, its usually only by one or two ticks (otherwise i feel its ME that has things wrong, not the market!).

I don't TRADE each market, (i do sometimes) and tend to let winners ride and try and red out when the market moves against me, WHEN I AM SATISFIED THE PRICE IS CORRECT (unlikely to get extra value for a second time but ideally i would!). As regards commission, and return on stake (your initial equation posted), would i not now be better off greening up no matter what the price moves to IF IT IS AN EFFICIENT PRICE. After the initial bet at value, is it not now better to red/green out no matter what (once you aren't giving away the "value"). ie over hundreds of markets, would this not be a better approach than letting profits ride. After all, 2.04 on a coin toss feels like value but is a loss-maker on 5% commission if you let it rise, like you illustrate. Thanks again,all the best

What's a whimp ?

I was joking. I hope you are too. What's " reding ".

Ooh we've started something here. Not good eh ?

Didn't you know cpfc.?
I'm one of those unbeatable " traders" who never gets it wrong.
Earn 10000 -20,000 % pa on a tiny risk capital base.
You mean you don't ?

Err thanks steve, I think.

coboz, you need to use software for that. It's called a ladder interface.
http://www.youtube.com/watch?v=W3SqDdDWCBk
there are a bunch of software solutions that provide it.

Alternatively you could always click on the little graph next to the runner. It isn't as dynamic but doesn't involve any software. It depends on your needs i suppose.

Frog  Redding up  means you lost less than you should have ......but you lost .

Trading is also punting, you are taking a risk, especially if the site goes down!