Since last Sunday’s F1 Grand Prix in Japan the F1 teams are preparing for the 2008 Chinese Grand Prix this weekend. We have discussed about the betfair’s odds of the F1 drivers in the Championship market and followed their movement since the Singapore race. Let’s see our past trading progress and how a stop loss can make us money.

Two races after Singapore, Lewis Hamilton remains the favorite in the championship race although his odds have drifted a little. Starting from 1.35 Hamilton won the pole position in the Japanese Grand Prix and his betting odds fell to 1.27 and even reached 1.21 at one point. We have said that a good trading order would have been to back Hamilton at 1.35 before the grand prix in Japan. If we didn’t close our trading position when the odds shortened to 1.27, we discussed how we would control our trading depending on the Japanese Grand Prix even if everything went bad for Hamilton. For example we examined the scenario Hamilton not to get any points and Massa to win the Japanese race. While we wouldn’t have the opportunity to make money, we could still manage our risk.

The F1 2008 Grand Prix in Japan is history now and our trading is under examination while the Chinese Grand Prix is closing down. Hamilton’s betfair odds are at 1.44 at this moment and given we have an open bet of $100 on him at 1.35, we can lay $93.8 at 1.44 and lose $6.20 in any result. In a few words, we had the opening to make some money (win $6) by laying at 1.27, we didn’t and now a good option is to walk away with a loss of $6. In the given situation we need a verification probability of more than 50% to make money in the long run.

Once again, I repeat that we never risked $100 of our initial bet. However, the more we allow our judgment to be influenced by the facts, the more we are in danger to reach the point of no return, when in other words we won’t be able to maneuver and face a big loss. The trading’s concept in online betting markets is about constant positioning (backing and laying) and not becoming more vulnerable in our betting.

What I want to say is this. If you chose to bet like you normally do in favor of Hamilton for F1 champion, you would bet a reasonable amount of money, let’s say $10. Now that you chose to trade the F1 championship betting market, it is totally acceptable to be placing bigger amounts of money. What is the real reason behind of this?

That is because having placed a stop loss like we saw in the previous article means that at that moment you define exactly the amount you stand to lose. If we have said that we would bail out of the market at 1.45, we would risk $6 and not $100. If the market moved in favor of us we could have either defined a take profit target (for instance, at 1.25 I walk away with my profit) or waited to see how low the odds might move and then finish trading. In that way we could also stand a chance to win the full amount of our bet ($100 at 1.35 would return $35 profit) risking in fact just $6.

Note that if you bet $10 at 1.35, you have to wait until the end of month to find out if Hamilton wins the F1 2008 championship to make you money ($3.5 that is). By trading and – I repeat – using a stop loss at 1.45, you risk $6 and might even win $35! You would actually have bet at 7.00 instead of 1.35! Now, that is not of course the aim of trading. What we are trying to accomplish is to make decisions calmly and without the pressure of time. Trading a long-term bet such as the F1 Drivers’ market, we can understand the innumerous options we have in our disposal. Some of them are to close a part of our position (laying $50 at 1.45 we lose $3 on all F1 drivers and continue trading with $50, having reduced our risk exposure), to take a better trading position by either reinforcing our initial bet (back at 1.45) or changing trading direction (lay more than $100 at 1.45 so that we take advantage of a possible drift of Hamilton’s odds), to back Massa so that we reduce our risk on Hamilton but at the same time risk more money in the same betting market, and so on.

What we should never do though is convert our trading into betting and that would happen if we don’t execute our stop loss. We would find ourselves in an unpleasant condition risking $100 on a bet we would actually be willing to risk just $10 in the beginning! Would you accept to multiply your risk by 10? I don’t think so and besides, your bankroll would scream for proper money management. Define your stop loss, execute it and your trading will make you money in the Betfair’s betting markets.