Money Management Up To £1K

Sparked by a comment made by Nathan ('The Final Furlong') to an earlier thread, I thought I'd take this opportunity to expand on my money management techniques I used to grow £10 into £1000.

From what I've seen on other blogs, it seems to be conventional wisdom for traders to change their stake size based on the odds of the runner they are trading. So, for example, one might use £1000 at odds under 2.00, £500 where the odds are 2.00 - 4.00 and £200 for odds of 4.00 to 6.00 say. This is done due to the differences in tick sizes and how it effects the profit or loss for a given number of ticks.

In addition, the stake size refers to the traders liability when backing, but it refers to the backers liability when laying. This probably stems from the way Bet Angel is used where any successful trade creates a free bet on the selected runner. Greening up requires a further lay bet to be placed.

In BinarySoft BDI, there is no green up function. By default, the software automatically hedges by calculating the stake required to close the trade - whether that is green or red, it doesn't matter.

When I started out in February with that £10, my intention was to use all of my bank for each trade. The winnings (or losses) would then be added to the bank and that new value would be used in the next trade. By compounding like this I felt that my bank would grow at a reasonable rate and as it did so, my returns per trade would grow thereby making my bank grow faster. But, it still provided me with some breathing space as I learned the skills to successfully trade so that I was not risking huge amounts.

So each trade I did, my bank was my liability. This is important in that when I laid short odds runners - which, given I was operating in the place markets, happened more often than not - meant that the backers stake was often much higher than my liability. This is where my staking differs from the convention outlined above.

The compounding nature of my staking meant that my bank would grow exponentially - which is amply demonstrated in the graph I posted when I hit the £1000 mark. However, there were two limiting factors that reduced the rate of this growth:

1. Around the time my bank was building towards £50, there were numerous issues with Betfair. There had been a few crashes; there were many reports of refresh delays and bet submission problems; and Betfair themselves were making a number of changes to their systems. It struck me then that I was running the risk of losing my whole bank if I was caught out by Betfair going down or I had other connection issues.

In order to protect myself I decided to start ring-fencing some of my bank. I didn't want to take lots out, as this would severely impact the growth rate of the bank.

What I settled on was to reduce my stake by 1/5 every time the bank reached a multiple of 50. So, When my bank reached £50, my stake was reduced to £40 and my original £10 was ring-fenced, though it remained in the bank. I was playing with free money - whooohoo! When the bank reached £100, a further £20 was ring-fenced making my stake £70 and so on.

That was the original plan, but it didn't pan out as neatly as that. As I progressed along this journey, I had numerous wobbles where my confidence was severely dented. I found it beneficial to ring-fence further amounts thereby dropping my stake. I'd continue to trade as before, growing the stake as outlined above. There was no need to reset the stake once my confidence returned as it had grown back in any case.

2. The second issue that restricted the exponential growth rate was one of liquidity in the place markets. As my staking approached the £100 mark, I found it difficult at times to get fully matched - or worse, to get out of trades. As a result, the compounding of my stake essentially stopped.

I still compound my stake during the day, but the following day, I don't continue from where I left off. Now that my bank has passed the £1000 point, my liabilities are stuck around the £80-£120 at the start of each day. The highest they've ever been is £150. If I ever figure out how to trade the win markets then that might change.

Many traders will use a significant portion of their bank in each trade. This makes sense. One might as well put that money to work each time. I do not do that, not in the fast paced world of horse racing markets anyway. I'm not willing to have a liability of much more than 10% simply because I have no other way of protecting my bank in the event of some failure in the communication chain between me and Betfair. Doing this, allows me to continue the fight in the event of disaster.

So, there you have it. How I managed my money from £10 to £1000.

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