cross matching betfair

How Does Cross Matching Work on Betfair? Full Explanation:

Posted on Posted in Betfair, Betting Explanations, General Rambling

What and how does cross-matching work on Betfair? Quite a few of you asked questions after a post last week about weight of money, and then the over-round.

Rather naively I assumed it was one of those things that all new traders would have looked up.

Apparently not.

In this post I’ll explain the following:

1. What is Betfair cross matching?
2. How cross matching works…
3. Cross matching calculations
4. Why was cross matching introduced?
5. How cross-matching affects traders
6. A few common questions about cross-matching

What is Betfair Cross-Matching?

When betting exchanges were first introduced, it was just a case of getting a bet matched.

There wasn’t so much ‘smart stuff’ going on. It was just backing and laying…

The market was pretty ‘dumb’ by all accounts. Probably why you hear tales of instant riches and £100,000 a month in the earlier days (those ahead of the curve).

However, there were some pretty big changes when cross matching came in from Betfair. In all honesty though, it probably existed way before Betfair implemented it, just via one of the big players, and at a wider margin. I guess that’s every automation geeks worst nightmare; Betfair replacing you, what’s to stop them?

Virtual Bets Cross Match

So what is cross matching?

As the name suggests: it’s the process of bets being matched across other outcomes in the same betting market, inversely proportional to price, in order to create additional liquidity within a betting market.

The easiest example is to look at an event with only two winning outcomes, like tennis. A back bet on player A is equal to a lay bet on player B. Meaning if you were to open a trade on player A with a back bet, you could close the trade on player B with a back bet also. In fact, that’s exactly what the ‘tradeshark hedge’ function does within the geeks toy software.

In the past, if you placed a back or lay bet way off the available price and there was no money in the market, it would sit there until it was matched. Now, the cross matching algorithm will see it matched sooner. More on how cross matching works in a moment.

Using a special algorithm, the market sees the unmatched bets suddenly matched, all in the blink of an eye.

Before you read on; don’t let all this send you into a panic.

It’s important to have an idea of how cross matching works and what cross matching is, but it’s not the end of the world. Understanding the principles and where/why Betfairs cross matching algorithm kicks in is more important than the actual calculations. New traders often get in a muddle when it comes to understanding cross matching, it’s not the easiest thing to see in your mind’s eye without a pen and paper.

I’ll do my best to keep things super-simple as I explain… 

 

How Does Cross-Matching Work on Betfair?

Here we go…

If you haven’t seen it already, it may be best to read about how betting odds work here first. Betting markets operate to 100% over-round on Betfair because of the cross matching algorithm.

Let’s start with an example of a ‘typical’ illiquid market, how it’ll often look way before an event starts.

cross matching algorithm

As you’d expect, the book is sufficiently ‘slack’ with large gaps in pricing. Over round percentages shown at the top of each column. Nothing unusual about that.

But for argument’s sake; if there was no other money in the entire market, other than displayed. What would happen if a back bet were to be dropped into the market at a significantly shorter price? (see how the £50 previously at 2.5 is now at 1.6).

cross matching example

First of all; this could never happen now, unless Betfair’s cross matching algorithm was off. Why? Because the lay side of the book is now larger than 100%, this would trigger Betfair’s cross matching algorithm. In fact, it would be triggered far sooner than if the bet were to be dropped as low as 1.6.

excel cross matching

The first price at which the cross matching would be triggered in the example would be 1.76. This is where the lay side of the book reaches more than 100%.

When the book reaches 100% it means that; it is now possible for Betfair’s cross matching algorithm to trigger and spread the invaluable bet across the other ‘available’ bets in the market. This is calculated in line with what money is at those prices within the market at any that time. Also, bearing in mind that the prices are different, the stakes will be different at different prices.

Basically, what I’m saying is; at 100% the 1.76 bet can be made equal to money waiting to be matched at 3.0 on runner 2 and 10.0 on runner 3. So instead of needing lay money to be available at 1.76 on the favourite, it already is, at 3.0 and 10.0 respectively.

The simplest visual I could come up with…

More in a moment but the thing to remember is, when an invaluable bet enters and the cross matching is triggered, it effectively causes pressure in the market like this:

The more aggressive the betting is within a 100%, the more money that will be simultaneously matched on the other runners. Cross matching is triggered by both back or lay bets.

The Cross Matching Calculation

If you’re interested, the cross matching calculation and other information (mainly for automaters and vendors) there’s more via the developer program here.

Simple explanation: To calculate the reflecting odds between two selections it looks like this…

Equivalent Back odd = Back odd/(Back odd – 1)

So for example. If it were a tennis match, player A may be trading at 3.0. This means player B has to trade a 1.5 because:

Cross Matching Calculation

Beyond two selections it gets more complicated. But as previously stated, it doesn’t matter so much to manual pre-race traders, as long as you understand the possible effects the cross matching can have, and when it’s likely to trigger.

Depending on which sport you prefer to trade will depend on how important the cross matching calculation will be to your trading. Events where there are limited outcomes, such as tennis or the unders and overs markets in football make spotting the cross matching far easier. Within racing, there is far more attention upon the few selections heading the market when it comes to identifying cross matching.

Why Was Cross Matching Introduced?

To increase liquidity and user experience I believe was the corporate line from Betfair in 2008.

Many have expressed different views. As I said earlier though, I fully suspect there was or at least would have been individuals running automated programs on the exchange like or similar to this previously. After all, if you look at the example above. All back bets entering the market between 1.6 and 1.76 would effectively be giving away free money to someone running such a program. Now that person is Betfair.

Bearing in mind how often that would happen, and how much money could be made, it’d be silly for them not to. Longer term followers and pre-race traders will have seen ‘the bomber’ as he’s affectionately refereed to (a massive mug punter that takes huge chunks out of the price on the exchange). This kind of behaviour routinely triggers cross matching, giving away a lot of value in the process.

Another reason that circulated at the time was; the additional revenue cross matching provides will fund development for the exchange. I’m sure they’ve spent a lot on the upkeep although from the outside it doesn’t seem to be the case.

When cross matching came in, many complained their competitive edge disappeared or was drastically reduced. I can’t comment though, cross matching was active before I made any proper money!

With that in mind…

How Does Cross Matching Affect Traders?

With this formula, we can see the exact difference between the matching an order and being ‘cross matched’.

However, it is important to note that Betfair respects the FIFO principle within the formula – first in, first out. I’ve seen many arguments to suggest that this simply isn’t being followed. For example, many people have noted how their money should be the first to enter the market but, instead, it ends up waiting behind others. I’ve thought it at times too, but in the same breath, it has also happened the other way around too. It’s important to be honest.

It just wouldn’t make sense for Betfair to take such risks deliberately…

cross matching overview chart

For you and I as traders, cross matching is just another market influence to bear in mind. In some instances, being aware that cross matching exists and is in operation presents an additional positive or negative to trading decisions. It provides an overall element of consistency to the markets.

Noticing market sentiment can be of particular interest to markets such as grehyounds, racing or even football (before the start). So having this characteristic active within the market provides some kind of structure to bear in mind. As shown earlier, one price goes up, another has to compensate.

Personal note: While it’s important to understand cross matching and the impact it has. I think new traders get a little caught up on it sometimes, don’t. Being unaware is daft, but obsessing about it will have you chasing your tail!

Cross Matching FAQs

Hopefully that’s a pretty thorough explanation as to how cross matching works within Betfairs exchange markets. To finish up, here’s a few questions I’ve noticed have cropped up over the years when talking to others:

Is cross matching on for every market? Nobody knows for sure what the criteria Betfair uses to switch on or off. If they did, there’s a good chance it would be possible to exploit. It does seem to be on in most instances though. Automation users are probably the most likely to notice should it be off. To manual traders it’s of little importance, cross matching will certainly be active when the betting is at its most fluid.

Are Betfair interfering in the market?

To this date, one of the biggest questions to arise from this topic has been the morality of Betfair intruding upon the markets like this. Although we can’t exactly give a final judgement against them, you can certainly say that they have altered the market and how it tends to behave. From here, the argument is up for debate and it often ends in what’s fair and what isn’t. Similar questions arise with various API upgrades and charges.

Is it fair?

It’s important to remember that Betfair is a licensed bookmaker and publically floated company, they are in control of their terms and conditions. Could we really expect them to just sit back and not squeeze it for all its worth?

Are there benefits for customers?

Betfair would argue it’s about getting customers bets matched, so that’s a positive. Although it takes away a lot of benefit from those scooping up value in the markets. Depends who you’re talking about I guess. For the consistent winners, not so much.

How can I work out the staking differences for the algorithm?

Staking across the book has to be alternatively proportionate. Again I see no value in this as a manual trader, the geekstoy software has a function called ‘tradeshark hedge’ which will do the maths for you within markets where there are only two selections. For example tennis. A quick example, similar to the one earlier in this article would mean in or create a similar match between 1.5 and 3.0. You would need to lay for double the stake you would have backed on the opposing player.

Do Betfair use bots?

According to the company themselves, they are in control of an internal account which is seen as the ‘counter-party’ to the cross-matched bets.

Although there will be continued debate as to whether Betfair is right to step into the market in this way, the fact remains; cross matching is there. There’s no value in complaining! You’re far better off understanding what’s going on and working around it!

Feel free to add any other questions in the comments below!

Related Articles: How Betting Odds Work | Understanding Weight of Money

10 thoughts on “How Does Cross Matching Work on Betfair? Full Explanation:

  1. Cross-matching will occur whenever it represents better value than matching on the single selection. What Betfair doesn’t say, they keep some of this value to themselves. I remember back in the day (2010?) when it was launched on Australian markets, they had to redistribute the profit from cross-matching back to the customers. Different jurisdiction I guess.

  2. What mean being na Exchange?! Player vs Player,or User vs User, no matter if in a tennis game, the market is offering both laying bellow 2.00 or backing both above 2.00. That is not Betfair problema. If Betfair Users have theyre Money in the market , thats theyre own responsability. Its a complete bullshit the excuse that is to giving liquidity to the markets. Betfair have bots operating in all markets with the goal of making Money, and they manipulate in same way that they always make green trades. This is perfectly easy to see in horse racing. Naive is who dont believe this, the same way that believe poker online is not rigged!

    1. I think you may be a little confused between some of those that operate on Betfair and Betfair themselves… although its not beyond the realms of possibility.

  3. I gave up using Betfair when they gubbed me from their sportsbook. I gave them a second chance when i realised they don’t have any real competition. The smaller exchanges are a waste of time. I gave up again when i backed a horse in the Grand National on the ante post market with the intention of laying it the day before the race and they suddenly without warning cancelled the market and wouldn’t allow me to lay against my ante post bet. This left me with a £500 bet at 139/1. They wanted me to deposit a ridiculous amount of money to cover it when i already had it covered. I complained and never received an apology. So i am finished with them.

    1. Fair enough, sounds like you give up a bit there on a few things, Len. Why did you back on the sportsbook at that price? im sure it would have been bigger on the exchange.

  4. Good article Caan and explained it well.

    I used to study second by second movements in Horse Racing prices and it didn’t make sense that changes would happen at the exact same second. I wondered who this was and it was obviously Betfair! Their argument for more bets matched and more liquidity is essentially true – the same argument that the high frequency stock market traders used for what are doing in the stock market. In reality if it wasn’t Betfair, it would be a high frequency automated Betfair arbitrage trader would co-locate on a server right next to the Betfair server was. The fastest will win – so the average or even above average trader wouldn’t really get the benefit if cross matching wasn’t being used.

    I did get a cross matching ‘dividend’ last October for the Australian markets but it was only 7 dollars so very low % and they didn’t give me any details

  5. i suppose its no different from the big three bookies flooding the market on course to counteract their liabilties in the shops.

  6. Hi and thanks for the clear explanation. Is betfair the only exchange to use this type of algorithm or are betdaq etc free of it? Seems to me to be an argument for using other exchanges if that is the case

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