While messing around on Google this morning I saw the Adam Todd story. It was this story that sparked my interest in trading.
The Adam Todd story
I started trading UK horseracing markets full time on Betfair in November 2002. I made GBP 40,000 profit in my first year from a starting bank of GBP 200 without even watching a horserace or picking up a formbook. With absolutely no knowledge of horseracing I would win an average of 9 races out of 10 and go months at a time without a losing day. The following results show that I have made over GBP100,000 profit from trading on Betfair, placing over 50 million pounds worth of bets in the process.
I had returned home to my parents’ in 2002 after spending years travelling all over the world and it quickly dawned on me that the party was over: I was 28 years old with no job, nowhere to live and not a penny to my name. As the frightening prospect of working for a living started to loom, my Dad showed me an interesting website that had popped up while I’d been away. He had always been interested in gambling systems and the stock market and things like that and my background as a futures trader was instantly awakened when he showed me. The website was Betfair.com.
In appearance Betfair was no different from the financial markets, the only difference was the underlying instrument which was being traded. Instead of buying and selling stocks or bonds, people were buying and selling bets on sports events. There was nothing stopping me from Laying a bet with one person at a certain price and then placing that same bet with somebody else at a slightly higher price, so long as I could read the short term direction of the market. The major advantages that Betfair had were how easy it was for anyone to get started and also how cheaply you could start learning. To get back into the futures exchanges as a trader takes capital and some hefty monthly bills on seat lease, round turns etc, Betfair immediately struck me as the poor man’s stock exchange, instantly accessible to anyone. Even their commission structure was better than the financial markets: Betfair takes a small percentage of your winnings instead of a fixed transaction fee based on Volume. I was free to trade huge volumes of ultra short term positions whilst trying for only single tick profits and was still able to make it pay.
My enthusiasm about Betfair rubbed off on my Dad and we talked about nothing else for the first few weeks while I traded 2 pound bets from our new Betfair account. Being able to trade in such tiny amounts meant I could try any kind of strategy out that I wanted without having to worry about whether I lost 10 pence or 20 pence on the final outcome, and it wasn’t my money anyway! Rent was free, food was free and I was still in that honeymoon period with my parents as I’d not seen them for so long so I could get away with it. After about a month of mixed results the figures started to settle down and it soon became clear that if I could do the same trades with larger amounts than 2 pound bets I would be able to make it pay. The excitement of realising that I could make a living from sitting in front of a computer from anywhere in the world was almost to much and I lived, breathed, ate and drank Betfair. The alternative of getting a job, especially after years of bumming around the third world drinking beer and fishing and lying in hammocks, was just to unbearable and now failure wasn’t an option. Dad gladly funded our Betfair account with 200 pounds and we upped the stakes.
The strategy was simple: Trading the favourite’s price in the last 10 minutes before the race started on all UK horseraces using all of the available balance. A big advantage I had was that I wasn’t interested in horseracing at all, and we didn’t have satellite television so I couldn’t watch the racing even if I’d wanted to. My complete attention to trading the numbers up until the race time and then moving on to the next race removed any thought of horses or races or who was going to win the race, I didn’t care. If I was showing a potential profit on the favourite as the race was about to start I would divide that profit by the available to lay odds and lay that amount to make sure I made the same whether the horse won or lost. Likewise, if i was showing a potential loss on the favourite if it won I would divide the loss by the available to back odds and Back that amount to make sure I lost the same whether that horse won or lost. It was all about the numbers, nothing else. I barely knew one end of a horse from another and was glad to keep it that way.
My trades were placed according to which way I thought the price was going to go in the immediate term, by which I mean in the next 10 seconds or less. As soon as I was matched on an opening Lay bet I would instantly be trying to Back the same amount at the next highest price. And as soon as I was matched on an opening Back bet I would instantly be trying to Lay the same amount at the next lowest price. If I couldn’t get out with the minimum profit immediately, I would move my price to get out at the same price that I had just got in at to make sure I didn’t lose. The Scratch Trade, laying and backing at the exact same price for no profit or loss, was my biggest friend, well over half of all my trades were probably scratch trades.
My trading decisions on whether to Back or Lay were based on what I saw everybody else doing. If money was coming into the market and Backing the favourite then so was I, if large amounts were Laying then so was I. All I was doing was looking for the trend and jumping on it and then jumping off it as quickly as I could. I took quick profits and even quicker scratches with occasional losses. I found that the longer I held a position the more chance it had of becoming a loser so I became fanatical about getting out as quickly as I could. I figured that the less time I held a position then the less that could go wrong and it seemed to hold up that way. Quick scratch trades inevitably cost me a lot of profits which I could have had if I hadn’t scratched so quickly but they also saved me from the big losses. There was no point in making lots of small one tick profits and then having a ten tick loss every now and then, the small profits strategy only worked if I was psychotic about avoiding losses. I never held onto a losing position and never let a bet ride hoping that the horse would win or lose, that was gambling and I wasn’t on Betfair to gamble.
My stake size was determined by how much money was in my Betfair account. If the favourite was trading at 3.0 and I had 200 pounds in my account then I could Lay up to 100 pounds so I would Back and Lay in 100 pound stakes. If the price was 2.0 I would back and lay in 200 pound stakes. As the account balance slowly crept up so did my stakes sizes as we had agreed not to withdraw any money from the account. The balance was divided by the odds before each race and in this way the profits were allowed to compound as I gradually bet bigger and bigger stakes as I got better and more profitable.
By the end of February 2003 I had run my Dad’s 200 pounds initial deposit up to 3000 pounds and I decided that anything over that level I would withdraw. I needed to be able to jump in and out of the market quickly, and there was no point in me keeping any more than that in my account because I couldn’t place such large bets easily in the same way that I had started. And besides, that meant that now I could start withdrawing my profits! The cold, dark, totally broke days of winter were finally over, now it was time to dust off the old backpack again and take Betfair on the road…!
2003 was my first full year trading on Betfair. I had started in November 2002 with 200 pounds and by the start of 2003 was up to about 300 pounds. Starting from January 2nd you can see that I had a winning run of about 70 straight days without a losing day and this was what really convinced me that I had cracked it.
Some of the winning days in that run were really break evens but the fact that on the bad days I stood still rather than losing was promising. A favourite phrase of mine was borrowed from Abraham Lincoln who said, ” I may only walk slowly but I never walk backwards!” You can see that despite some of the days when I made next to nothing, the fact that I wasn’t going backwards meant that things started to build up fast even from such a small starting bank.
The good thing about trading is that you can continually use your bank over and over again to generate profits from a much higher amount of bets than you could actually place if you weren’t trading. By continually using the same bank in loads of short term, low risk low payout bets I was making the tiniest of margins but on a big enough amount of money to make it worthwhile. A 1% profit on turnover was out of the question, most days you can see I only make more like 0.1% on turnover, the secret was to do such a high volume of these low risk, low payout bets as to make such a small profit margin worthwhile.
As you can see, my total volume of bets placed for the year from that initial 300 pound bank was GBP 17,620,846 making a profit before commission of GBP 42,130. This equates to a profit margin of only 0.24% profit on turnover. A quarter of a percent profit margin sounds pretty crap but when applied to almost GBP 20 million pounds it starts to become worthwhile. And the advantage of such low margin trading was the consistency of my results that such a low payout made possible. I wasn’t exactly asking for a lot so it was reasonable to expect such a flat growth rate with hardly any volatility and literally no drawdown.
The other advantage of such consistent profits is that it keeps commission down to the bare minimum. If you are gambling on Betfair and have large swings in your results you end up paying much more commission as a percentage of your profits than if you only win and don’t have those big swings. For instance, say you’re gambling on each race, if you win GBP 200 on a race, then lose GBP 180 on the next race and then win GBP 200 on the next race and then lose GBP 180 on the next race you have made GBP 40 profit overall from 4 races. 5% commission charged on your 2 winning races is GBP 20 so you end up with GBP 20 profit. Even though commission is only 5% you have actually paid out 50% of your winnings in commission.
Now, if you had been trading those same 4 races and made an average of 10 pounds on each race, not only would you have made the same profit without having to stomach the 2 big losses but you would pay much less in commission also. 5% of each GBP 10 profit is 50 pence so you would end up with GBP 38 out of your original GBP 40 profit. 5% commission when you don’t have losses to take into account actually means 5%.
You can see that my total commission payments for the year totalled GBP 2336 which equates to only 5.54% of my total winnings, it’s slightly higher than 5% because I didn’t win every race that I traded on, I only made a profit on 9 races out of 10. Trading is by far the most efficient and consistent way of making money on Betfair.
And the lack of losses means you don’t need to keep a big bank to ride the inevitable losing runs that you will experience when gambling. An evens chance can have a losing run of 8 or 9 no problem, it happens routinely on any roulette wheel. If you’re backing horses at odds of 3.0 or 4.0 you can reasonably expect losing runs of 20 or 30. As my chance of winning on each race was 1/10 my chances of a losing run of more than 3 or 4 were very slim so I didn’t need as big a bank as a gambler needs.
I ran my Betfair account balance up to 3000 pounds by March and at that point I decided to start withdrawing money. By then I was pretty confident that I was on the right track and I was sick of being broke and living at home. Besides, I had reached a ceiling and didn’t need any more than that to be able to place the maximum sized bets that the markets could handle. First thing I did was kiss my parents goodbye, thanked them for letting me live for free while betting on horses everyday and moved to London where I rented a room in a shared house in Fulham with a bunch of Aussies. I didn’t want to be cooped up in the house so instead of working from there I worked out of the easy internet cafe on High St Kensington everyday.
Each day I’d get up at the crack of noon, have an hour long bath and then stroll to work. Things had definitely taken a sharp upturn in my life! There were 3 losing days in March, I think due to the adjustment of always having to trade with a hangover now, but apart from those little blips things continued to get better and I didn’t have any losing days in April or May as my figures started to average that magical grand a week figure that I had been aiming for.
London was great and I was having a lot of fun but it didn’t take long for the old itchy feet to start up again and I decided to really push it to the limit and see if I could move abroad and still make pounds, the ultimate goal. I went to Barcelona and rented a nice apartment near the beach and worked out of an internet cafe at the end of La Ramblas, the one with the best computers. This was in the summer when the evening racing was on so I’d spend about 7 hours a day in there every day and then go out and get hammered every night. After a few months of that I got a bit bored again and as soon as the evening racing finished at the end of August I took the Betfair show back on the road to Rio de Janeiro. The plan of doing the same there didn’t quite work because the internet connection was no good in any of the internet cafes, so after a couple of weeks off I headed over to America to try it out there.
San Fransisco was my first stop, I’d heard some nice things about it so figured I’d try it out but the problem was the West coast timezone. UK horseraces started at 6am and if I’d stayed there through the winter I’d have been getting up at 4am to start trading. Not. After 3 early starts working out of Kinkos I decided to bail and headed over to the more civilised timezone of the East coast. Miami here I come!
I loved Miami as soon as I arrived. Being able to make pounds by sitting in front of a computer for 3 hours a day still blew me away and within 12 hours of landing I’d rented a 14th floor ocean view apartment in South Beach. It took a while to get internet hooked up so in the meantime I’d take my new laptop to the Starbucks on Ocean Drive every morning and do my trading from there. By midday I was out of there with another successful day behind me and it was either off to the beach or whatever I wanted. I had never felt so free.
And that was my first year on Betfair.
2004 got off to a pretty good start, I didn’t have a losing day until June. It was this year that I had the idea of starting a website and that was when RacingTraders was born. The original idea was to make screen recordings of me trading on the horses and to sell those videos but it didn’t really take off the way I thought it would. Then I got the idea of doing a trading course where I would teach people how to trade on the horses and that got a lot more interest. The gambling magazine Inside Edge printed an article I wrote about the new phenomenon of betting exchange trading and that’s what got the trading courses sold out.
The first course was held in July in London in the 5 star Waldorf Hilton which was nice. The course went well, I’d limited the class size to 20 and a bunch of us went out afterwards and got hopelessly drunk. The second course was a week later in Manchester at another 5 star hotel and that went down well also. With places selling out at GBP295 a seat I reckon I could have carried on making money from doing courses but it wasn’t really my thing, I prefered sitting at a computer on my own making money instead of being in front of a group of people.
After that I kind of neglected the website as the videos hadn’t been a great success and I didn’t want to carry on doing courses so I went back to trading. I knew that I wanted to find another way of making money so that I wouldn’t be dependent on trading everyday but I wasn’t sure how yet. Then when Betfair released their API allowing developers to build their own software to interface to the exchange I got the idea of making a totally different style of interface that would allow me to place bets with only one click. Just before I did the trading courses I had tendonitis and was in agony from clicking the refresh button on the Betfair website literally millions of times, and the whole bet submission process was just to slow and cumbersome and prone to error. I didn’t like that way I had to do so many clicks and move the mouse all over the screen to place a bet so decided to build my own trading interface.
Deciding to build your own software application and actually building your own software application are 2 quite different things. I soon realised that I didn’t know jack about anything and I wasted all of the rest of 2004 with 2 different people that said they could help me with it but who turned out to be full of shit. I knew the layout of the interface that I wanted, it was the ladder trading interface that I wanted to build but I was just some bum that bet on horses for a living who could barely work his email properly. Apart from Betfair and Yahoo the world of computers was a mystery to me and I didn’t know where to start. By the end of the year I had managed to get the ladder interface drawn up on Photoshop and had a meeting with a software developer who after hearing what I wanted said he could do it.
2005 was a strange year all round for me. I gave up drinking completely after deciding that I couldn’t take it anymore, the girl that I later went on to marry moved into my apartment as my flatmate which distracted the hell out of me, and I was trying to develop a live updating trading application with a programmer that soon got bored with the job and left me with a half finished, buggy piece of shit software application. A lot of time had to be spent using and testing the application on busy horseracing markets which meant that I couldn’t concentrate on trading anymore, and you can see the effect it all had on my results. I was still making a living but that’s about all it was now, and after 3 years of doing the same thing I was getting a bit jaded by it.
The first version of BetTrader was a complete joke compared to what it is now, it was extremely basic, built in Flash for some stupid reason, and only worked as long as you didn’t let a race get suspended before moving on to the next race. If you let the race start before closing the market and going to the next one you would have to close down the app and relogin. But it submitted bets with one click on the ladder and displayed prices being updated once a second so it was better than using the Betfair website.
I was really having trouble getting anyone to use the app because it was so buggy and you had to know exactly how to use it. It was like an old car that you had to know to lift the handle in a certain way to get in it and then jiggle the key in a certain way to start it and you had to know how to use the gears to stop it stalling. As long as you knew all those things it worked perfectly! What got the ball moving with it was when I made a couple of demo videos where I used it to trade every race one after the other for 3 hours on two consecutive days with no editing. I think the videos were made on August 5th and August 6th. I used to get very vocal when trading if I lost so much as a fiver so a lot of people found them amusing but their main worth was showing people that you could use the application to trade every race without it crashing on you. After I released those videos then people started to try it out.
After that it started to get pretty popular and now I wasn’t totally dependent on trading for a living. And being able to show that there was a market for a trading application with the ladder interface helped me to convince some friends and my brother that they should give me some money so I could start again with another programmer, and do a proper job of building a live updating trading application with loads more features which actually worked! In December 2005 we started development of the current application in .NET framework written in C sharp with 2 extremely talented programmers and ever since then I’ve been doing that full time with them. I found that it was impossible to trade effectively whilst also testing and developing software on the same markets, it just doesn’t work, so rather than do both badly I was glad to take a break from trading.
All of 2006 was spent developing BetTrader PRO and I was glad of the break from trading to be honest, but I’m thinking about starting trading again in 2007 as a way of promoting how to use the application to make consistent profits from trading.