In what way does Betfair's algorithm know as cross-matching alter the matching order of the market?
Did this algorithm in any way affect the normal way of operating in which the first placed bets would be the first bets to be corresponded at that odd?
Sometimes I notice that the FIFO (first one, first out) is not being followed. Example:
- I placed a bet at an odd that had no money before mine, as such, I expect that my money will be the 1st to be matched;
- I noticed however, that money was corresponded at that odd, before mine, and mine was still there waiting.
In truth, it has also happened the other way around, I placed money at an odd that already had money attached but still, I was matched before the money that was already there.
When I started my activity at betfair I was a pre-live bettor only, so I had to closely control how long was my bet on the line for and if I was still a long way from being matched.
In order to do that I calculated the volume that was being transactioned and it always added up. Like so:
- 30 000€ were waiting at a given odd, I placed my 100€ bet there (those were my bets then);
- And after an increase in transactioned volume of 30 thousand Euros top at that odd, my bet would go in;
- Sometimes even earlier because some bets that were on the line in front of me were being cancelled.
In 2008 however, Betfair implemented a system called “Cross Matching”, a system that is progressively being applied to more markets and sports.
In 2014 Betfair expanded the usage of this algorithm to crosses between markets, connected identical bets on different markets (example: Correct-score 0-0 and Under 0,5 goals) and called it “Cross Market Liquidity Pooling”.
The idea behind these systems is to increase the viability of our still unmatched bets, making them available on more market selections or even on other similar markets. Another advantage of this system is the increase of the apparent liquidity of the markets.
I'll try and give you a small example of what is cross-matching, taking a simple market, the Over/Under 2,5 goals:
- If I place a backing bet on the Over with 10€ @8.8,
- my bet will not be matched and is shown as available money to Lay on the Over @8.8,
- so there will be 37€ (were already there) +10€ = 47€ available to Lay on the Over @8.8.
- notice though that cross-matching immediately at the same time made available a Back bet on the Under @1.12,
- the money available to Back @1.12 was also altered from 349€ to 427€,
- that was a 78€ increase, which is the profit I will get from my 10€ Back bet on the Over 10€ @8.8.
- This second bet is cross-matching hard at work!
- Notice that if I cancel my unmatched bet the 10€ Lay on the Over @8.8 and the 78€ Backing the Under @1.12 will also disappear taking everything back to the start.
Cross-matching replicates my bet in every similar place in order to increase the probability of it being matched faster.
Because of this, my Back the Under bet is the same as a Lay the Under bet, within "complementary odds".
How do you calculate this so called “complementary odd”? We have here a very useful article on useful trading formulas which contains this equation that relates a back Odd with a fictitious Back odd, which will be the odd of a Lay bet with the same probability of happening.
We know that Backing at a high odd is the same as Laying at a low odd – both events have the same low probability of happening. This is the basic principle that supports the equation.
I believe that this is exactly the formula that explains the difference on the matching order we are witnessing on the market. The fictitious odd of the Back bet I placed @8.8 does not add up to the correct value of the odds of the market, let's see:
The virtual bet created by the cross-matching on the Under as a 1.1282 odd, which is placed within the 1.12 to 1.13 interval.
Betfair shows it at 1.12, but in reality she was just placed in line above the other bets placed directly on the Under @1.1200.
So, when someone is placing Backs on the Under @1.12, and taking money from the 427€ available @1.12, the 78€ of the 1.1282 virtual bet will go in before the 349€ of the @1.1200 bets.
Back to the point, I believe that Betfair respects the FIFO principle, but before that comes the Odd principle: the bets with better odd go in first.
This is my view on this theme.