Why do betting odds change?
Understanding why odds change before the start of an event is a fundamental betting principle. By identifying how money influences market movement, bettors can make more accurate predictions on the outcome.
Weight of money is an indicator obtained from volume on a betting exchange and is used to determine whether or not the odds are likely to lengthen or shorten. If volume is weighted to backing then the price is likely to shorten. Conversely, if the volume is weighted to laying, then the price likely lengthens.
What is a betting market & how is it formed?
A market is anywhere that allows the trading of a good or service. At a betting exchange, a market is where buying and selling occurs on the outcome of a future event, while a bookmaker only offers users the ability to buy.
A market is formed when odds are set by a bookmaker, traders or marketmakers, based on their perception of the relative chance of each outcome in the market. Typical factors they consider include:
- Relative strength of participants
- Prevailing conditions
- Expectation of where money will be placed
Why do odds change?
The chance of a coin toss resulting in heads (or tails) is 50%. The same is true at any time before the toss is completed.
Sporting events and financial markets do not offer the same controlled certainty, so the chance (or odds) on a given outcome can, and will, change in the time before it starts.
A number of factors can affect odds but the primary drivers for these changes are:
- New Information - Team selection, injury news etc.
- Market confidence - More information drives more liquidity in the market
- Money - Where the money is going determines which way the odds move
Why does money move a market?
The more uncertainty surrounding an outcome, the less confidence bettors, traders or oddsmakers will have in the result.
The consequence; poor liquidity, poor prices (bookmakers) and large spreads (betting exchanges).
As the start of the event approaches some of the uncertainty built into the initial pricing can be dismissed, as unknowns become knowns, resulting in increased confidence which encourages smart bettors to add volume to the market.
A bookmaker confident in their initial assessment could choose not to move the odds. However, in a changing market this could result in them being out of line with other market providers and overly exposed on a given outcome.
Rather than taking that risk, bookmakers would normally adjust the odds based on the flow of money; more money coming in for an outcome results in the odds shortening and the alternatives lengthened.
How does money move an exchange market?
The initial seeding by traders or marketmakers will provide liquidity and a spread based on their confidence in the market.
As more information becomes available, confidence in the price increases, resulting in an influx of money, which reinforces the trust in prices.
Sharp bettors identify value in the markets (under or overpriced odds), driving it closer to the true price.
In general, the closer to the start of the event, the closer to the true price a market will become, due to the wisdom of the crowds and where they put their money.
What impact does the weight of money have?
A balanced market occurs when there is equal money on each side (back and lay) of the market.
If the market is unbalanced, the result is normally a correction in the odds. If there is more volume backing than laying, the price will shorten. If there is more volume laying than backing, then the price will lengthen.
Apply this to betting
The flow of money is the most accurate way of determining the outcome of any future event. Understanding these market movements can help you predict the outcome of any event, from sports to politics.
For example, the shortening of a presidential candidate’s odds is a good indication that a strong opinion has formed on their chances of winning. Although this doesn’t guarantee the win, it’s up to you to decide whether to trust the opinion of the market, or your own.
Wisdom of the crowds will drive the odds to the true price in the lead up to the event. If you have bet at odds superior to those available at the start, this is a good indicator of a value bet, and you can green up to lock in a profit regardless of the outcome.