Not sure what an over-round is? In short; it’s the combined total of priced probability across all outcomes on a single event.
To make money in betting you’ll need to find value of one kind or another. In order to do this, you need to understand the game.
The over-round is a big influence in any one market…
This post has absolutely everything you need to know, including;
- How betting odds work
- Understanding the over-round
- Over-round and implied chance calculations
- The difference between bookmakers odds and betting exchanges
- Why all of this matters to traders, or anyone looking to win
How Do Betting Odds Work?
Betting odds are relatively simple to understand. In most cases the explanation is over complicated.
Let’s try and keep it simple…
an over-round is the combined total of priced probability across all outcomes on a single event
It’s basically the rule that makes all the prices add up and make forming a betting market possible.
If you forget the betting for a moment and think about any competitive event, be it horse racing, football or tennis. All possible outcomes combined, total 100%. Betting odds work on this principle, from then on a betting firm factors in their profit margin. More on that in a moment.
The simplest explanation would go something like this:
Imagine a coin toss.
- 50% chance the coin lands on heads.
- 50% chance the coin lands on tails.
Overall chance totals 100%, it has to.
The odds in either case, would be calculated based on the chance of the outcome. Or at least the perceived chance (because not every event is as straight-forward as a two sided coin).
This also means betting odds have to be balanced within any one market.
If one selection should shorten in price, another has to lengthen and vice-versa. The exception being when a bookmakers odds are at a particularly bad over-round margin, essentially there is more ‘slack’ in the pricing. In layman’s terms, the bookies set the odds so bad they can afford to let some prices drift without having to shorten others.
To understand how the odds are created, it’s a good idea to look at the various calculations…
Over-round Calculation Explained
Before we look at the over-round calculation (entire betting markets odds) it’s best to understand the prices individually. It’s quite simple.
Implied chance = 100 / decimal odds
To make the calculation clear, here’s an example:
A betting price of ‘evens’ (2.0) is known as this because the selection has an even chance of winning, 50/50. Like a coin toss.
If we enter those odds into our over-round calculation it works out like this; 100 / 2.0 = 50.
Meaning the outcomes implied chance of happening is 50%.
This is also why shorter odds are so important in horse racing markets.
Just think, if a horse’s price indicates it has a 50% chance of winning, it holds a pretty big influence over the rest of the market.
Makes sense, right?
But what about the total over-round calculation? it’s just the sum of the implied chance within any given market. See below.
The more competitive (and active) a market is, the closer the over-round will be to 100%. This won’t happen for long though with various automated algorithms, in particular Betfairs cross-matching algorithm. I’ll explain that another time though, it’s a post in itself.
When you understand the over-round, it becomes clear quite how bad the offering is with a bookmaker.
Differences Between Betfair and Bookmakers
In comparison to a betting exchange, bookmakers odds are poor.
I’ve added an additional column to show a bookmakers odds in fractional format for the same betting market as above. Next to them is the decimal conversion.
No wonder you’ve never seen a poor bookie!
In comparison there was a 31.1% difference over the entire market with a bookmaker. In favour of the bookie, of course. That’s why you can rarely ever win with a bookmaker, and as well all know – if you do, they’ll limit you to £1 stakes or close your account in no time at all.
That’s the difference between a bookmaker and betting exchanges.
In most cases a bookmakers first response is “but you can’t get your bets on in the morning on Betfair”. I find this statement both hilarious and hypocritical. When pressed you’ll find they often pipe-down.
They’d like to lead everyone to believe they will lay a bet in the morning, the reality is; they’ll let you have a small amount at the price and the rest at SP (starting price). And once you’ve won a few times they’ll tell you to sod off (see £1 bet comment above).
Bookmakers SP is of course useless in most cases, it contains that over-round difference to the true market value expressed by the exchange. And the true-odds (exchange odds) are dictated by thousands of people around the world, some running mathematical algorithms, trading and betting. Many of which are far more intelligent that the bookies. Best-case you’ll get a lower over-round percentage than the example above from a bookie.
Plus, betting exchanges aren’t so bad around 10.30am these days. Getting a bet matched isn’t that hard, unless it’s well into the £100’s at a good price. In which case the bookies would have laughed you out-of-town long ago.
Why Over-round is Important to Traders
So, how does understanding the over-round affect traders?
Bearing the over-round in mind can be helpful to traders. It’s not exactly an edge. Although it can indicate how much ‘slack’ there is in the current market pricing.
To make that a little clearer; if there is what you think is a significant gamble taking place and the over-round percentage is 100.6% then the overall book is tight. It’s quite likely large sums dropping into the market will trigger Betfair’s cross-matching algorithm, spreading the value across other prices in the alternate direction, inversely proportionate to price.
That’s a bit of a mouthful I know.
Quite a few readers may be a little lost. In fact, I’ll have to make the next article I write about cross matching to make things a little clearer. If you’re interested, weight of money is also likely to be something you want to read about.
The simplest way to put it is, it’s a little like domino’s for traders…
Not the Pizza place, the type you may have stood in a long line as a kid before starting an avalanche.
When the cross-matching kicks in and starts to do its thing, it spreads the point of pressure across the entire betting market. Pushing the competing prices in the alternate direction.
It doesn’t necessarily mean the price action has to continue one way though, unfortunately. What it does do, is provide a point in the market where the current pricing is unlikely to remain static. Because if the impending pressure is resisted, there’s likely to be a bit of a whip-saw in the alternate direction. How much depends on the market volatility.
Why Do Betting Odds Change?
There are many factors that contribute to a change in odds. With a bookmaker it’s a little different to an exchange, although the principles are the same. There’s far more margin in the bookmakers betting odds, so it’s fair to say; the exchange always leads. Or at least it should, in some instances you’ll find it doesn’t though leading to a potential arbitrage opportunity. This is when the bookies are at their most vulnerable, and easily beaten.
But obviously that leads to the usual account closures.
You’ll see bookmakers odds just following the exchange these days, the closest representation to true-value. Support and resistance is probably my most reliable indicator, and commonly used as video pack users will know.
In all honesty, I think the best course of action when it comes to knowing if betting odds will change is not in predicting the future. But more a case of assessing what’s under or overvalued already, at that point in time and then playing the percentage call.
Of course that’s not what the industry would have everyone believe…
Overall, understanding the over-round and how betting odds work is useful to us, but not the holy grail when it comes to making money on Betfair. Bookmakers like to make out they’re doing something special and rather complicated. But in the modern world, they all just follow Betfair and slap on a bigger margin. At SP the exchange markets pricing is surprisingly efficient.
Between understanding the over-round, weight of money and cross matching it’s probably not too hard to see there are some interesting snippets that lead towards making a profit. Like any indicator though, it’d be foolish to rely solely on one. Increasing your knowledge on a situation is always a good thing though…
I may have made a mistake in assuming this was one of the first things any aspiring trader would look up. As with anything in life, finding a profitable angle comes from first understanding the market rules and limitations and working with what you have!
If you found this post of use, please let me know below!
Still not sure? Watch this: