One popular trading technique is known as “scalping”. The idea of scalping is to get in and out of the market very quickly in order to lock in a small profit with a very small risk. Usually scalpers will only take one or two “pips” of profit. A “pip” is a single jump in the odds, so from $2.80 to $2.78 is one pip. A jump from $10 to $9.80 is also one pip. Trades that take more profit than that are more commonly referred to as “swing trades” rather than scalping.
The strategy can apply to any sport but there are situations which are more conducive to scalping than others. Horse racing is popular, cricket and soccer can also be profitable. But let’s use tennis as an example.
This technique in tennis is referred to “scalping the serve”. Generally professionals are more likely to hold their serve than be broken, and although there are exceptions, it creates a good opportunity to trade as a player’s odds will usually shorten a little after they win a point, and even further after they win a game. If we know that their odds are likely to shorten if they hold serve, then it creates an opportunity to back at a higher price, than lay the same bet at a lower price to lock in a profit.
So for example, Roger Federer is showing live odds of $1.80 to win the match after his opponent held serve to go to 3-3 in the first set. We back Federer for $100 at $1.80 before he serves. He wins the first two points to go 30-0 up and immediately his match odds come into $1.76. We could lay at that point, but we wait for Federer to hold his serve and his odds shift to $1.72. We then lay the $100 at $1.72 and lock in an $8 profit (excluding commission) in a successful trade.
The beauty of scalping is that we can do this over and over and over during a match. If you make ten successful trades during a match, that average $8 profit, then you’ve earned $80 profit at extremely low risk. You can then “green up” and split the profit over both players to guarantee a profit regardless of the result.
Sounds great, so what are the risks?
There’s a chance that your tennis player will have his or her serve broken. Or that your soccer team concedes a goal. Or your horse might drift and drift and never come back below the odds of your back bet. This leaves you with a negative overall position and you need to make a decision about your best approach. Whatever you decide to do, you need to have discipline. Some people like to have a “stop loss” – that is a predefined amount that they are prepared to accept, so that when the price drifts too far, they get out of the trade and take a small loss. It’s not a bad approach.
It vitally important that if you’re scalping on horse racing that you never let your bets run “in play”. You need to green/red up before the jump. If you think you can trade out during the race itself, you are setting yourself up for potential disaster. Remember scalping is about taking a few dollars here and there. If you let it run in play, you’re going to end up having one race where you blow your whole bankroll in one hit. Don’t do it.
There are a couple of other factors to consider with scalping. Trading sports in Australia can only be done over the phone, which can cause shifts in prices by the time you place the bet. Also you need to make sure that the market has good liquidity – not enough money in the market and your bets won’t get matched, while too much money in the market will produce a flat market which isn’t conducive to trading.
Also be careful if you’re attempting to scalp in some of the Australian horse racing markets. New legislation introduced last year means that Betfair has to pay racing authorities a tax based on the turnover of back bets in some states. Victoria and Queensland recently announced the removal of the turnover charge, but it still applies in some states. Lay betting strategies, rather than backing, might be more effective in those markets, but scalping is certainly effective on UK or other overseas race markets.
Discipline is a key factor for any trading but scalping in particular since you are looking to make lots of small, low-risk gains, and one mistake can be very costly. We’ll explore scalping techniques in more detail in future articles on Before You Bet.
