Sports Trading Insurance has become a very common topic, but most sports traders use it in a way that is harmful to their bankrolls.
That’s why we have allocated a whole lesson for you.
There are many debates on this topic, but we want you to take our word for it. It’s for the good of your budget. But at the same time, you have the right to disagree with us. We respect your opinion.
And again, as you are already used to, we just want to come clean and present the real situation in a transparent way. There is much wrong advice out there!
Insurance is a way to transfer the risk of potential losses from an individual or organization to an insurance company. It can provide peace of mind and financial protection in case of unforeseen events, such as car accidents, home damage, or personal liability claims.
Having insurance can be a good thing in life as it helps to protect you financially from unexpected events. For example, if you are involved in a car accident, having car insurance can help to cover the cost of repairs or replacement of your vehicle, as well as any medical expenses that may arise. Similarly, if your home is damaged in a fire or natural disaster, having home insurance can help to cover the cost of repairs or rebuilding. Without insurance, you would have to pay for these expenses out of your own pocket, which could be financially devastating.
Enough with this classic insurance.
Sports Trading Insurance
Back to the betting exchange, where bright minds invented this type of sports trading insurance.
You will come across this variety of insurance under many names. “Lay The Draw with insurance” or “Trading goals with insurance” are just a couple of examples. Regardless of the name, avoid it!
This kind of sports trading insurance involves placing additional bets or trades that promise to offset potential losses from a primary trade.
While this may seem true, our calculations tell us that the real situation is different.
Sports Trading Insurance is bad for your trading
Unfortunately, this form of trading insurance is not only useless, but it is also harmful. And we’ll explain why…
The odds on a betting exchange are perfectly aligned because they are determined by supply and demand, with the exchange acting as a facilitator rather than a bookmaker.
Simply put, the markets are perfectly matched. For example, the Match Odds market corresponds perfectly with the Correct Score market. If you were to bet on all tie scores (dutch 0-0, 1-1, etc.) you will have the same return as if you backed the draw.
Therefore, if you place that insurance type bet on the Match Odds market or any other corresponding market, the chances are the same.
But why do we say that this type of insurance is harmful and not just useless?!
Because, due to the commission applied by betting exchanges, you have an additional loss when you place the insurance bet.
We know it seems difficult to understand. That is probably why there is the confusion that this type of insurance bet would be useful.
Let’s take a basic example, maybe it will make more sense to you…
With and without insurance
You place a €200 back bet on the home team at odds of 2.00. This means €200 liability for €200 potential profit.
But you want a 50% insurance bet. So you dutch all the correct scores except home wins 1-0, 2-0, 2-1,… and any other home win (see dutching calculator). Because the markets are aligned, you need to risk €100 to earn a €100 potential profit.
Home Team wins
Profit = +€200
Commission (2%) = -€4
Insurance bet = -€100
P/L = +€96
Draw or Away win
Loss = -€200
Insurance bet = +€100
Commission (2%) = -€2
P/L = -€102
If you had placed a back bet with only 50% of the stake on the Home Team, you would have a net income of +€98 or a loss of -€100!
And the ROI is even worse…
P/L = +€96
Investment = €300
ROI = 32%
P/L = +€98
Investment = €100
ROI = 98%
This was a simple example. But any variation of this insurance will bring you the same result, an additional unnecessary loss.
Sports Trading Insurance will harm your profitability. Basically, you pay a commission even when you lose.
Why would such misdirections be given by some of the “experts”? Maybe they want to make their strategies seem more interesting. Or they want to make it harder for you to track the profit obtained.
If you think that the liability is too high, you have two easy alternatives: reduce the risk by placing a lower stake. Or hedge your trade in the same market.
Don’t be fooled by such complicated nice-looking strategies.