How are starting odds created?

[Holy Joe]

Been talking at work a fair amount about betting, especially around Brexit. So odds work out at around 75% chance of remain and 29% chance of Brexit - now these add up to >100%, which I think is called overrounding and is effectively the bookies way of making a profit. Understand that odds change depending on amount of money being placed - but how are the first advertised odds created? Are these odds more volatile as bookies establish the market?

Thanks for any help

 

[Uncle Leo]

Been talking at work a fair amount about betting, especially around Brexit. So odds work out at around 75% chance of remain and 29% chance of Brexit - now these add up to >100%, which I think is called overrounding and is effectively the bookies way of making a profit. Understand that odds change depending on amount of money being placed - but how are the first advertised odds created? Are these odds more volatile as bookies establish the market?

Thanks for any help

Think of odds as any other product. Let's take a pint of beer. The price of that pint of beer will depend on various factors - where it is being sold (a pint will cost more in London than Southend), what beer it is (Carling will be cheaper than Staropramen) and so on. I go to pubs, so would be able to make a fair stab at the price. My grandmother never goes to pubs so wouldn't have a clue.

Same with odds - the trader will, through experience, have a good notion of what price (say) England should be to beat Russia or what price the UK is to leave the EU. The trader will have a better notion than someone who doesn't spend their working day studying form/polls/historical results etc.

Once the opening price goes up, it is then at the mercy of the markets!

 

[fatshrimp]

Been talking at work a fair amount about betting, especially around Brexit. So odds work out at around 75% chance of remain and 29% chance of Brexit - now these add up to >100%, which I think is called overrounding and is effectively the bookies way of making a profit. Understand that odds change depending on amount of money being placed - but how are the first advertised odds created? Are these odds more volatile as bookies establish the market?

Thanks for any help

On that note, I was going to ask a similar question yesterday.

Implied probability was around 72% of a remain vote when I last looked, but the opinion polls are broadly split with just a few percentage points between them, not the landslide that the bookies implied probability would suggest.

Perhaps I'm being niaive but what's the correlation between the two? Why such an apparent discrepancy? Is the implied probability based solely upon the level of transactional betting?

Cheers.

 

[Uncle Leo]

On that note, I was going to ask a similar question yesterday.

Implied probability was around 72% of a remain vote when I last looked, but the opinion polls are broadly split with just a few percentage points between them, not the landslide that the bookies implied probability would suggest.

Perhaps I'm being niaive but what's the correlation between the two? Why such an apparent discrepancy? Is the implied probability based solely upon the level of transactional betting?

Cheers.

By this stage, it will be largely based on where the market is - i.e. bets placed. Also, odds makers will be taking a view on matters such as what the 'undecideds' are most likely to vote, a potential late swing as people decide, at the last minute, that they're not all that up for change, etc.

EDIT - just seen this press release. I used to work with Matthew Shaddick and he's a good guy. Actually talks real numbers rather than PR guff.

http://uk.businessinsider.com/most-...ut-odds-still-favour-remain-2016-6??r=US&IR=T

 

[fatshrimp]

By this stage, it will be largely based on where the market is - i.e. bets placed. Also, odds makers will be taking a view on matters such as what the 'undecideds' are most likely to vote, a potential late swing as people decide, at the last minute, that they're not all that up for change, etc.

EDIT - just seen this press release. I used to work with Matthew Shaddick and he's a good guy. Actually talks real numbers rather than PR guff.

http://uk.businessinsider.com/most-...ut-odds-still-favour-remain-2016-6??r=US&IR=T

Cheers, that sort of makes sense. Interesting article too. I'd be inclined to follow the bookies rather than the polls...

 

[Holy Joe]

Uncle Leo - thanks very much. And fatshrimp as well. One think I always need to remind my self is that the combined probabilities are not suggesting 75% of people will vote remain - but that there is a 75% chance that greater than 50% of voters will vote remain.

 

[Grayson]

Uncle Leo - thanks very much. And fatshrimp as well. One think I always need to remind my self is that the combined probabilities are not suggesting 75% of people will vote remain - but that there is a 75% chance that greater than 50% of voters will vote remain.

Spot on, and that's something an article like this got wrong by also confunsing a bookmaker's probability of >50% voting remain with the actual vote split: http://www.independent.co.uk/voices/bookmakers-prediction-eu-referendum-brexit-winner-a7046966.html

 

[Holy Joe]

Been thinking about this more - now if there is a greater number of bets for Brexit - doesn't that signify that the probability of exit is higher than remain? - after all in the referendum each vote is equal whereas in the bookies each bet is not equal, but depends on the stake.

 

[Grayson]

Been thinking about this more - now if there is a greater number of bets for Brexit - doesn't that signify that the probability of exit is higher than remain? - after all in the referendum each vote is equal whereas in the bookies each bet is not equal, but depends on the stake.

Not necessarily. More bets does not equal more liability. Be a lot more speculative tenners at 3s than at 1/4 or whatever.