How Market Makers Create a Dynamic Sports Betting (“Trading”) Experience
So, you’ve done your research. You’re watching…patiently…for the “dip.”
You pull the trigger on Tesla and within milliseconds you own 20 shares at a great price.
Now some time has passed, the stock has rallied and you’re ready to take your gains.
Except when you go to cash out, you click the big “sell shares” button and nothing happens — the spinning-wheel-of-death appears and you wait…
And wait and wait. How can this happen? There’s no buyer? No one to take the other side? Seems impossible — right?
Well that’s because this scenario is almost nonexistent for today’s stock or crypto trader.
Why you may ask? Thanks to significant advances in technology, infrastructure and most importantly: the existence of market makers.
Market makers are simply individuals or institutions that are contractually obligated to provide liquidity to marketplaces by always willing to both buy and sell the listed instrument so that retail customers can execute trades with little cost or friction. So what does this have to do with sports betting?
At first glance, traditional sportsbooks do somewhat resemble market makers. They set the lines and the prices (typically -110 for a 50–50 market), ensuring they have enough vig on both sides to make money regardless of the outcome. And when you go to place a bet before the start of a game, the liquidity is almost always there on their terms. (That is, if you’re still welcome to play at that particular sportsbook).
But that’s about where the similarities end.
Unlike financial market makers, traditional sportsbooks often cap the betting limits of winning players or even ban them outright. More common is that bookmakers apply a 3 to 10+ second delay on your attempt to place an in-play wager. Can you imagine if you tried to sell those 20 shares of Tesla and you were capped at only selling five, or worse, after you pressed “Sell” you were subjected to a 6 second delay where you watched the price of Tesla dip lower? Or worse yet, during the delay, your order was rejected because trading was suspended on Tesla altogether?
Of course not, but that’s because financial market makers are participants on an exchange, not the exchange itself. Sportsbooks make their own market and don’t like to make a habit of being on the losing end of trades.
That’s where a sports betting exchange like the one we’re building at Sporttrade comes into play. On a sports betting exchange, Sporttrade operates as the marketplace where sports bets are bought and sold, the same way Nasdaq operates as a marketplace for buying and selling equities like Tesla or Apple. Because our exchange is partnering with various market makers, there will likely be prices at which you can buy or sell an outcome on Sporttrade.
In the same way that a market maker on a financial exchange sets pricing for a certain security, a market maker on a sports betting exchange takes game intel, market sentiment, and traditional betting lines to determine a quote price spread that ensures there is a small edge on both sides.
For individual traders on the exchange, this means that at any given time, you are able to exit your position at the price determined by the market. Unlike traditional sportsbooks which set lines (prices) on their terms and often bar you from cashing out of your bet or quote you a cashout price at far less than its actual market price.
Can an exchange operate without a market maker? Sure, just look at popular exchanges like Facebook Marketplace for buying and selling used goods. But as anyone who has used it knows, transactions aren’t usually instantaneous. They can involve a great deal of negotiation and work before a successful trade is made. The same friction would likely occur on a sports betting exchange without market makers providing liquidity.
For example, let’s say you’re placing a bet on a basketball game for the 76ers to beat the Knicks, and the 76ers were up by 18 at halftime. To avoid having to sweat out a NY comeback in the second half, you list your bet for “sale” on an exchange without a market maker. Even if you were to list it at a fair price, there’s no guarantee that someone else will be online and looking to purchase your position from you. The proposition of buying a bet without knowing if you’ll be able to exit your position is exactly what traditional sportsbooks offer already!
That’s the Sporttrade advantage. As an institutional grade sports “trading” exchange, we will offer customers a unique and dynamic trading experience. When you take a position, it’s yours to do what you please. Sell half of it and let the rest ride, trade out of your entire lot to mitigate a loss, or just hold until the game’s conclusion. Whatever you want to do with your bet is up to you, thanks to market maker-provided liquidity only on Sporttrade.