When trading with CFD’s we are trading over the difference in the variation, which allows us to bet a lot more money than we actually have available in bank.
Leveraging is a term used in finances related with CFD’s and loans.
When trading with CFD’s (Contracts for Difference) we are trading on the difference of variation which allows us to "bet" a lot more money than we have available in our bank.
Similarly, when a company asks for money it doesn't have, it's leveraging the business.
Betfair allows us to leverage our bank with odds under 2.00, since we are allowed to bet the value of our liability and not the amount of money in our bank.
This was critical in an early stage of my sports trading career in Betfair, since it allowed me to make my bank grow a lot faster.
Note: someone betting 100€ against Barcelona (using the odds from the tip) @1.38 and Back @1.63 will win 15,34€
However, someone with a bank of 100€ is allowed to bet 263.15€ against Barcelona @1.38.
This will allow closing the trade @1.63, making a 40,36€ profit, that is, +40,36% of the invested capital.
Unfortunately, this is only possible with dropping movements (Lay first and then Back) with odds under 2.00.
If the Barcelona odd were dropping, someone with a 100€ bank would not be allowed to Back @1.63 with 222.79€ and then Lay @1.38 with 263.15€ (as in the example above).
In this case they would have to bet 100€ @1.63 and then Lay with 118.11€ @1.38, winning only 18.11€, instead of 40,63€.
The profitability of your trades will depend on the odd and how the market is moving.
With a 100€ liability, if the odd rises we'll win 40.36€ and if it drops we'll win 18.11€.
The first time I won more than 100€ in a trade was in a match in which England was the clear favourite to win and the odd was €1.09.
At the time I only worked pre-live and I managed to have 11.000€ matched @1.09 when I had a bank of just over 1.000€.
I then placed a corresponding Back bet @1.10 and prayed it was matched before the match started.
… and it did!