Thinking about real-money trading
April 23rd, 2007If you're new here, you may want to get Mercury's Blog by Email or subscribe to my RSS feed. Thanks for visiting!
I’ve recently been thinking more about how Tradesports/InTrade and BetFair approach their versions of prediction markets, and specifically betting markets.
The key difference between Tradesports and BetFair is their psychological approach to betting markets. What I mean by this is that BetFair approaches the markets from a betting perspective because they compete with “high street†bookmakers, while TradeSports approaches the markets from a financial perspective, presumably to distance themselves as much as possible from being seen as a bookmaker. This difference defines the interaction throughout a user’s experience.
BetFair has positioned itself as competition to the traditional bookmaker in the UK. They are also currently running an ad campaign promoting their exchange as a place where you can trade competitively against other bettors. Due to this strategic positioning, the interface on BetFair is based on odds instead of percentages. (Specifically decimal odds, which are more standard here in Europe but far less so in the US.) This means they use the terms “Back†and “Lay†instead of Buy & Sell (Bid/Ask). In the express view of a BetFair market, it simply shows the best Backing odds for each contract in a market. The full view of the market shows the best three Back and Lay odds for each contract in a market, with a value of how much money can be bet on those odds.
With the difference between Express and Full view, BetFair essentially uses some of the ideas that I’ve discussed previously on this blog. Namely, that users should be able to interact with the markets according to their skill levels. Seeing the Back and Lay order books for each contracts could potentially confuse novice traders; the Express view is ideal for simple understanding. Specifically, it is the same interface that most bettors use at the high street shops. Instead of betting on Manchester United to win the Premiership at odds of 2/1, they choose to back Manchester United at 3. (Or really, 3.3 or something like that, as you get better odds than a traditional bookmaker.)
TradeSports and InTrade have positioned themselves as a futures market for events. This has driven much of how the site operates for the user. Instead of using betting terms such as Back and Lay, they use financial terms like Bid and Ask. Users on the site purchase or sell event futures contracts, so there the quantity displayed is not a dollar value but a number of contracts traded instead. Perhaps most importantly, the probability implied by the contract price is explicit. Users don’t have to convert traditional or decimal odds to determine the probability of an event occurring. (This is likely why TradeSports is so often quoted in the US, where popular press of betting odds is virtually unheard of compared to the UK and Western Europe.)
Presumably the TradeSports/InTrade approach is setup like it is because it distances them psychologically from being a betting shop, and more like a futures market. Additionally, some people can more easily understand probabilities than odds, and their markets take advantage of that bias. Their website is also a bit less elegant and more “market-like,†though that is likely just due to design and implementation issues. Overall, it allows for very explicit pricing and perhaps has the benefit of encouraging additional trading, as users can sell their contracts that have increased in price for a locked-in profit.
Summary
BetFair and TradeSports/InTrade are two very different ways of approaching a real-money prediction market. While BetFair has positioned themselves as competition to a standard bookmaker, TradeSports has positioned themselves as a futures market in events. Both sites offer essentially the same service – a market that allows you to trade with others on the outcome of events. However, the manner they approach that service can significantly alter the user’s experiences on the site. Both are interesting and valid approaches, though they cater to very different audiences.
