It may come as a surprise to some of you that many professional bettors and traders know very little about the sports they bet on. They’re called “Cold Traders”, and they exist in both the financial and sports betting worlds.
Cold Traders are known to operate in the Horse Racing racing markets where the odds are highly volatile. But unlike the vast majority of other bettors in the market, Cold Traders don’t study the form, jockeys, trainers, pedigree, the going, and so on. Most don’t even watch the events.
This concept can seem alien to some bettors. Yet it’s highly important to recognise that successful betting doesn’t hinge on what you know about a sport — it’s what you know about odds.
Article Contents
Cold Trading Isn’t As Crazy As It Sounds
Let’s compare Cold Trading to investing.
Many investors buy/sell shares without really understanding a great deal about the company or the business. The reason for trading may be loosely based on trends occurring in the market, some basic analysis, or just a ‘feeling’. Whatever the reason, investors hope for a rise or fall in the price to a point where a profit can be secured.
This is the same approach that Cold Traders take with sports odds. They look to earn regular profits by placing:
- Back bets (hoping for the odds to fall)
- Lay bets (hoping for the odds to?rise)
It’s not so unusual after all, is it?
Cold Trading Close To The Off — Liquid Markets
Many cold traders operate within the last 30 (or so) minutes leading up to the race, aiming to lock in small profits regardless of the race result. At this time the volatility is high and the markets are liquid; ripe for quick trades.
Cold Traders often do all of their business before the off, and move straight onto the next race with little to no attachment to the race result.
The below Matched Money graph shows the total turnover for a 14:15 race
What this graph illustrates is the huge rate of change in the total stake during the lead up to the race; a consequence of many "cold traders" joining the market activity late on.
Trading Software
It’s worth noting that professional traders are almost certainly using some kind of betting tool, or automated bot. It’s a competitive environment — so without technology you’re already at a disadvantage. I recommend using Geeks Toy for speedy bet placement.
What Trading Techniques Cold Traders Use?
The most popular trading techniques involve the following methods/approaches:
However, there’s not exactly a rule book to follow. Traders find their own edge by constantly familiarising themselves with the markets and how they behave.
Cold Trading With A Flexible Time Frame — Illiquid Markets
Cold trading isn’t only associated with activity close to the off. Some traders are more flexible and seek to capitalise on illiquid markets — often represented by wide spreads between the Back/Lay odds.
This is because unformed, illiquid markets have less competition for odds and occasionally give traders an opportunity to Back or Lay at better value than a liquid, efficient market would allow for.
One may argue that being so flexible with time is an impractical approach which requires a high level of input from the bettor. However, Bots can handle multiple bets at one time, monitor unmatched bets and trade out of them when necessary. So it’s certainly possible to work outside of the busy markets.
The Relevance of Wide Spreads
Wide spreads often occur hours before the race, shown by a relatively large disparity between the Back and Lay odds of a selection.?
In financial markets traders believe that, on average, the midpoint of the spread is an approximation of the fair value — and this theory is also widely accepted by professional sports traders using the betting exchange. Basically: if the spread is big, there’s likely to be a price inaccuracy somewhere.
The Top & Bottom of the Spread has Value
Because the fair value [on average] lies in-between the spread, then this implies that the prices at either end of the spread have value.?
Therefore Backing at the top, or Laying at the bottom, of the wide spread presents our Cold Trader with an opportunity to trade blindly, betting on value without ever needing to know any specifics about the selection itself. This is just one approach that might be applied to illiquid markets.
Knowing What’s Profitable
Sufficient historical data must be collected and analysed to identify patterns in the betting markets. Building a large sample of bets is crucial for checking any strategy you devise.
In the case of exploring the ‘wide spreads’ theory from the previous section, traders would need to analyse the past performance of similar cases to be certain that an opportunity exists. However, there’s yet another an uncertainty which remains in this type of strategy: will the bets get matched at either end of the spread after you come to place them for real?
The truth is there isn’t any guarantee that there will enough liquidity to fill your orders (the Back or Lay bets placed, that is). Only ‘live’ trading and monitoring can give you a greater understanding of how well your strategy works. You may come to find that some concepts — such as the ‘wide spread’ idea I’ve mentioned — are theoretically sound, but infeasible to capitalise on in practice.
Traders need to find ways to work around issues such as low liquidity. For instance:
Backing just inside the top of the spread offers?a more attractive Lay betting opportunity (with less liability) for another trader to take.?This is what is referred to as "improving the price", and it increases the chances of fully matching a stake.
Are Statistics Relevant For Cold Trading?
A Cold Trader aims to recognise that an event has occurred, or is occurring — rather than identify the strengths/weaknesses of the participants in the sport (e.g. which horse performs best in certain weather conditions).
Professional Cold Traders often collect large sets of data from the markets and analyse odds movements with the view to identify triggers, or events, where a trade could be made. Therefore some statistics are of great importance.
Cold Traders put particular emphasis is put on the:
- ‘Value’?in?the odds
- Predicted increase/decrease?in the odds?(and thereby value)
- Rate of change in the odds
- Amount of money matched
- Market liquidity
So yes — statistics and various other metrics play a huge part in forming Cold Trading strategies. But choices are based on what’s going on in the market rather than sporting performance.
Final Thoughts
Whatever approach the Cold Trader takes, one thing is consistent: they do not hold a preconceived idea as to who they believe will win or lose. It’s a much less biased approach to sports betting.
So you wouldn’t ever find these guys with the Racing Post clasped tightly in their hands, shouting frantically at the TV set. In fact, the less they know about the horses the better — because this only increases the chance of forming an opinion, or emotional attachment to an outcome.
Volatility, liquidity, inaccuracies in the market, and movements in the odds are all that interests traders with the ‘cold’ mentality. And this is perhaps a weakness in the approach: being reactive to the market, as opposed to proactive, may leave the Cold Trader liable to act on the back of noise or false alarms rather than identifying value based on other statistical approaches.
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