It may come as a surprise to some of you that many Horse Racing traders know very little about the form, jockeys, trainers, pedigree, the going, and so on. Some traders don’t even watch the racing whatsoever. These kinds of bettors are often referred to as “Cold Traders” and they exist in both the financial and sports betting worlds.
Cold Trading Isn’t As Crazy As It Sounds…
Think about buying/selling shares without really understanding a great deal about the company or the business. Your reason for trading may be loosely based on trends occurring in the market, some basic analysis, or just a ‘feeling’.
Whatever your reason, you hope for a rise or fall in the price to a point where you can secure a profit. This is the same approach that cold traders take to sports odds. They look to earn regular profits by placing:
- Back bets (hoping for the odds to fall)
- Lay bets (hoping for the odds to rise)
Cold Trading Close To The Off — Liquid Markets
Many cold traders operate within the last 30 (or so) minutes leading up to the race, aiming to lock in small profits regardless of the race result. At this time the volatility is high and the markets are liquid, making it practical for fast trading techniques. These traders often move straight onto the next race with little to no attachment to the race result.
The below Matched Money graph shows the total turnover for a 14:15 race
What this graph illustrates is the huge rate of change in the total stake during the lead up to the race; a consequence of many "cold traders" joining the market activity late on.
Professional traders entering the markets late on are almost certainly using some kind of betting tool, or bot. It’s a competitive environment — so without suitable Betfair trading tools you’re already at a disadvantage. I recommend using Geeks Toy or BetTrader due to their notoriety for speedy bet placement.
► What trading techniques do they use?
The most popular trading techniques involve the following methods/approaches:
Cold Trading With A Flexible Time Frame — Illiquid Markets
Cold trading isn’t only associated with activity close to the off. Some traders are flexible and seek to capitalise on illiquid markets with less certainty — often represented by wide spreads in the Back/Lay odds.
Unformed, illiquid markets have less competition for odds and arguably more opportunity to Back or Lay at better value than a liquid, competitive market would allow for. However, this depends on each individual instance. Extremely low liquidity might be detrimental to a trader’s strategy.
► What are Wide Spreads?
Wide spreads often occur hours before the race, shown by a [relatively] large disparity between the Back and Lay odds of a selection.
In financial markets traders believe that, on average, the midpoint of the spread is an approximation of the fair value — and this theory is also widely accepted by professional traders using the betting exchange.
► The Top & Bottom of the Spread has value
If the fair value [on average] lies inbetween the spread, then this implies that the prices at either end are value. Therefore Backing at the top, or Laying at the bottom of the wide spread presents our ‘cold’ trader with an opportunity for trading blindly, and betting on value, without ever needing to know any specifics about the selection itself (e.g. a random horse). This is just one approach that might be used.
► But how could the trader be sure This is a Profitable approach?
Sufficient historical data must be collected and analysed to identify patterns in the results. But still, making ‘blind’ assumptions could be the downfall for the ‘cold’ trader.
In the case of the ‘wide spreads’ concept, there’s another an uncertainty that remains: will the bets get matched at either end of the spread?
The truth is there isn’t any guarantee that there will enough liquidity to fill the orders (the Back or Lay bets placed, that is). Only ‘live’ trading and monitoring can give you a greater understanding of what your expectations should be going forward. You may come to find that some concepts — such as this strategy — are theoretically sound, but infeasible in practice.
However, traders can work around the low liquidity by improving the prices on the exchange:
Backing just inside the top of the spread offers a more attractive Lay betting opportunity (with less liability) for another trader to take. This is what is referred to as "improving the price", and it increases the chances of fully matching a stake.
One may argue that being flexible with time is an impractical approach to cold trading as it requires such a high level of input from the bettor. This is true — but the use of a price monitoring bot certainly makes it easier. Bots can handle multiple bets at one time, monitor unmatched bets and trade out of them when necessary.
Are Statistics Relevant For Cold Trading?
Cold Traders don’t usually analyse the specifics of the race itself, but instead focus on market trends. Particular emphasis is put on the:
- ‘Value’ in the odds
- Predicted increase/decrease in the odds (and thereby value)
- Rate of change in the odds
- Amount of money matched
- Market liquidity
So yes — statistics, of a different type, play a huge part in Cold Trading.
Professional Traders collect large sets of data from the markets and analyse trends with the view to identify triggers, or events, where a trade could be made. The mentality of a Cold Trader is to recognise that an event has occurred, or is occurring, and not to be concerned with who/what caused it to happen in the first place (e.g. the weather conditions).
Whatever approach the Cold Trader takes, one thing is consistent: he doesn’t hold a preconceived idea as to what horse he believes will win the race.
It’s a totally unbiased approach. So you wouldn’t ever find these guys with the Racing Post clasped tightly in their hands, shouting frantically at the TV set. In fact, the less they know about the horses and the race the better — because this only increases the chance of forming an opinion, or emotional attachment to an outcome.
Volatility, liquidity, inaccuracies in the market, and movements in the odds are all that interests traders with the ‘cold’ mentality. And this is a weakness in the approach — being so reactive to the market, as opposed to proactively identifying value before a market event takes place may leave the trader liable to act on the back of noise or false alarms.