PART 2: SIMULATIONS & THE VARIABLES INVOLVED IN MAKING A LIVING FROM BETTING
THE STARTING BANKROLL
An important element is your starting point. Just like with more traditional forms of investing such as stocks or real estate, if one already has money it becomes easier to accumulate more of it. A common comparison in the stock market is to benchmark results versus an S&P 500 index fund. The S&P 500 is viewed as the market. Historically the average annual return of following the S&P 500 has been around 7-8%. Or in other words, if you are able to get a higher avg. ROI per year than 7-8%, then you are beating the market. If I had $1M to invest in an S&P 500 fund and given an 8% ROI I would make $80 000. My bankroll in October, when we launched Trademate was only $6000, so if I had invested it into the S&P 500 I could expect to make $480 in 1 year. The point being that the difference in starting bankroll on the results is quite significant. The good thing about value betting or sports trading as we also call it, is that it is possible to start out with a relatively small bankroll and build it upwards. Since October, I’ve made a $5,7k profit, or a 95% ROI in just 9 months. Because sporting events are a lot shorter than the horizons in the stock market, one can achieve compound growth a lot faster.
For the remainder of this article we will use 3 fictive characters with different starting bankrolls to examine what is possible to achieve with value betting. I will also factor in that they are Trademate customers in this analysis, and thus have to pay for a subscription.
Arnold is betting on the Europeans markets only. Starting bankroll $1 000. Using a Trademate Core subscription
Bob is betting on the European markets with a goal of eventually transitioning into the Asian markets. Starting bankroll $5 000. Using a Trademate Core and later a Trademate Pro subscription
Charlie is betting in the Asian markets. Starting bankroll $20 000. Using a Trademate Pro subscription
If I were to start over as a new customer I would go for a quarterly package, because that would bring down my avg. monthly costs. From a psychological perspective, it also forces me to commit to getting in enough trades that I can both cover the subscription costs and make a decent profit. Or in other words making sure I get value for my money.
HOW TO CALCULATE EXPECTED THEORETICAL EARNINGS BASED ON YOUR EDGE
The way to calculate expected theoretical earnings would be: Expected earnings per month = ( Starting Bankroll * Avg. ROI per trade ^ number of times the bankroll is turned over)
Trademate users have beat the soft bookmakers with an avg. flat ROI of 2.6% per trade from a sample size of +200 000 trades. Note that we do not consider using flat stakes as an optimal strategy when trading. But as part of the analysis to see whether we actually have an edge over the market it is important to remove the effects of stake sizing. The stake sizes inside Trademate are calculated based on the the Kelly Criterion, a proportional staking strategy. Following it 100% gives the highest potential profit growth, but the variance gets rather crazy You can read more about the Kelly Criterion here or watch this video. So in practice 30-50% is better. I use 30% myself. Now, by following a proportional staking strategy it is possible to achieve a higher avg. ROI per bet, than with a flat stake sizing strategy. Currently I’m running at 5.1% flat and 8.2% actual ROI per bet from a sample size of 1783 trades. My average closing edge is at 2.6% Read more on the closing line and why it is the most important benchmark in sports betting here. As a benchmark for what to expect, one should compare the avg. flat ROI vs the avg. closing edge. I’m running roughly 2x better than expected (5.1% / 2.6%). I have achieved an additional effect of 3.1% avg. ROI per bet from my stake sizing (8.2% - 5.1%). What we can deduct for this is that a) I’ve had some luck as I’m running better than expected and b) stake sizing strategy is very important and can have a large impact on the actual results.
RISK AND AVERAGE STAKE SIZE
If I know that I have a 2.6% edge on the market on average, my turnover will affect how much I can expect to earn. E.g. for every $100 bet, I could expect to make $2,60. However with regards to the stake size, there is a tradeoff between turnover and risk. To stay within reasonable risk levels, while still getting a decent turnover I would aim to on avg. place 0.5% of my total bankroll on a bet.
Assuming 0.5% of the total bankroll.
Thus a $20 000 bankroll would imply an avg. stake size of $100.
Thus a $5 000 bankroll would imply an avg. stake size of $25.
The smallest bankroll would have to go for it more aggressively for the results to be interesting, so let’s assume a 1% of the total bankroll in the beginning.
Thus a $1 000 bankroll would imply an avg. stake size of $10.
The actual stake size would vary if one follows the Kelly Criterion, e.g. one would place a higher stake on a 2% edge with 2.0 in odds than a 5.0 in odds. Defining an avg. stake size in this article is useful as it enables us to play around with the numbers to see what happens.
DISTRIBUTING THE BANKROLL
In practice, I would spread my bankroll over as many bookmakers as possible with a few constraints which are covered in this article. Especially for Arnold who starts out with a low bankroll of $1000, taking advantage of the signup bonuses to boost the bankroll is beneficial. If one has a very large bankroll one can increase the % of the bankroll distributed to the lower volume bookie by having more of them.
I use a password manager to save me time whenever I log in, as it saves my username / password. (I’m using Lastpass, but there are plenty out there).
NUMBER OF TRADES
Having a sufficient amount of bookies affects how many edges occur in the feed inside Trademate, which again affects the number of trades that one is able to get in on.
A casual Trademate weekend user might average about 100 trades per week. (8-10 hours). This adds up to 400 trades per month.
An active Trademate user average anywhere between 200-400 trades per week. (+20 hours). This adds up to 800-1600 trades per month.
The most hardcore Trademate users have done +600 per week. (+40 hours). This adds up to 2400 trades per month.
So with these numbers as our basic assumptions, I’ve run some simulations as to what the results might look like. The purpose of these simulations is to show what results are possible if these targets are achieved. There are no guarantees that this is what the actual results will be like. Variance and timing of swings will make the actual profits deviate from the theoretical profits. Stake sizing will also have a large impact. In our opinion these numbers are realistic as they are based on what our most successful customers have been able to achieve. In the simulations I have assumed that Arnold, Bob and Charlie have been putting in the time required to get a high number of trades, which really is what is required in order to make money from betting.
INTERPRETING THE SIMULATION RESULTS
First off, the starting bankroll has a very large impact on the results. This is particularly true for the Asians, given that the number of trades + potential ROI is relatively fixed or has limited room for improvement. Also, having a high starting bankroll enables a higher avg. stake size and thus higher turnover. Obviously you as a user of Trademate need to make sure that you have the appropriate bankroll to clear our subscription fee and get results that you are satisfied with.
A second aspect is that obviously the actual results and ROI will vary from month to month. In the simulation we have used 0.6% as the average results. So one month one could be running at 1.2%, another month at -0.8% and so on. When swings occur will have an impact on results. E.g. if they happen early it will have a larger impact on growth than if they happen later. Also note how the effects of compounding increase with time, so that even if one is getting in the same number of trades at the same avg. ROI, the results will improve thanks to compounding, and potentially quite dramatically so.
Third, if one is able to run at higher average ROIs than 2.6% like I have been doing, it will have a large impact on the results.
Fourth, note that if you can it is ideal to combine trading on the sharps with the softs, because the higher ROI on the softs can really have a huge impact on building the bankroll needed to make a successful transition versus just going straight into the Asian market.
Fifth, to make a living in 1 year one will need to have an even larger starting bankroll or take larger risks. Still I’d be pretty satisfied with a $20k profit in year 1. The next year I would keep going.
Finally note that turnover is key, especially in Asia. If one wants to make a profit in the millions one needs a turnover in the 10s of millions. If one wants to make a profit in the 100k class, one needs a turnover of millions and so forth. Turnover is impacted by the number of trades, stake size and starting bankroll.
You can make a copy of this spreadsheet and play around with the inputs to see how it affects the potential results.
In the 3rd and final part of this article series we will compare the results from the simulations with Jonas Gjelstad’s results in his $10k to $1 million run. We will also cover some further thoughts on what is required to make a successful living from sports betting.