Betting exchanges like Matchbook and Betfair have some pretty interesting players. Although people generally have the how to invest money in the said platforms; a few of them treat it as gambling.
And when we refer to something as gambling, we mean that we do not play our cards right and we tend to go all or nothing. There are two ways of playing your cards in Matchbook and Betfair and that is the insurance and lottery model. Their differences are pretty much described by their
For instance, the lottery model is where you bet on something even if the odds aren’t really stacking in your favor. We are suckers for this type of playing method because we are all greedy by design. If we have a hunch, we bet a bunch.
The problem with the lottery model, however, is that we do not take into account other considerations. We care only about betting on our favorite horses, for example, without taking into consideration other factors that might influence the outcome such as the weather, the terrain, and so on.
But the thing is, the lottery model is quite popular because aside from our inherent greed, the feeling of winning something, even though it is against all odds, is exciting, to say the least.
The other playing method is what is known as the insurance model. This is the more careful approach and it is concerned more about making trades that are more suited to winning; even though it doesn’t take home a lot of profits.
Just like an insurance company that writes many policies, the insurance model is where a trader makes as many bets as possible. However, the difference to this one, as opposed to the lottery model, is that it is much more careful and calculated.
For example, if the lottery model is more concerned about making bets and trades based solely on the amount of money they could get, the insurance model is more concerned about not losing a lot of money, but still getting some profits no matter how small it is.
In other words, players who are following the insurance model takes a look at all possible factors that can influence the outcome, make an initial bet, and then change the bet to hedge their assets against possible losses.
These are the people who will create stops or limits so that they won’t lose as much money than people who are following the lottery model. What is interesting is that I’ve looked at the market closely last week and I found two traders; each with distinct trading styles.
One is following the lottery model and one was following the insurance model. Surely enough, the one who used the former play style won huge profits, only for it to be diminished a few trades in.
On the other hand, the one who was more methodical and more careful did not earn as much as the other player. However, he still made profits, even though it was modest.