How to Reduce Your Liability

how to

Knowing how to reduce your liability when tennis trading can save you time and allow you to lock-in a profit at a much higher price.

Plenty of times when tennis trading you will find yourself in a profitable position but you are either unable to stay until the end of the match or close this trade so you can focus on another match.

Typically, you would hedge your position, ie cash out, for a guaranteed smaller profit.

But there is another way to hedge out of the trade giving you a higher profit and a guaranteed zero loss.  It's called reducing your liability.

 

The set up

To be clear, you can only do this when you're in a profitable position and, for whatever reason, you want to hedge out.

If you were in a losing situation you would look to recover your position in a different way.

So let's look at an example to see how this works.

You placed a BACK trade for £50 on Player A at odds of 1.8 because you thought they would soon win the 1st set.

Player A does win the 1st set and their odds fall to 1.2

You are now sitting on a guaranteed profit of £25.00 if you hedge at this point

But let's say you feel very confident that Player A will go on to win the match and if they do you will win £40 (1.8 odds x £50).  So you really want to stay in the match for more money.

But you can't....either because you need to be somewhere else or there are other matches that you want to trade. 

What can you do?

So, currently you could win a maximum of £40 if Player A wins the match but you have a liability of £50 if Player A loses the match.

If you are prepared to accept a slightly lower profit in exchange for removing your liability completely, then this is what you can do.

Place a LAY trade on Player A for the same stake value as your BACK trade. So in this example, it would be £50 at odds 1.2

So now you have the following outcomes:

If Player A Wins the Match - Your BACK trade pays out £40 and your LAY trade costs you £10 (1.2 x £50), giving you a profit of £30

So this is £5 more than your current solution using a standard hedge for guaranteed profit of £25.  Or, if you like, a £20% increase on your potential profit

But what this LAY trade also does is reduce your liability on this trade to ZERO!

So if Player A loses the match - Your BACK trade costs you £50 but your LAY trade pays out £50 so you don't lose any money.

When to reduce your liability

On the face of it, gaining an extra £5 for a potential profit compared to a guaranteed £25 doesn't seem worth it.

But if Player A was your predicted winner before the match and they have just won the 1st set, then you may feel that the chances of them losing the match are very small.

Therefore, you will want to get as much money as possible.

But you are a tennis trader not a gambler. And tennis traders control & limit their risk at all times, so leaving a bet to hope they win is gambling mentality

But you don't have to reduce your liability by removing all of it.  You can remove just some it to gain a little more profit.

Reducing liability instead of removing it altogether

Remember, this only applies if you feel you could make more money but are unable to hang around until the end of the match

Rather than just make an extra £5 if Player A wins, you could alter the stake value to get different outcomes.

For example, by using only 50% of the original BACK stake for your LAY trade, you would end up with different payouts.

Let's say you used £25 for your LAY trade, which is 50% of your original BACK stake, then:

If Player wins the match you would win £35 but if they lost you would lose £25.

Losing £25 instead of £50 is good, but by increasing your payout by just another £5 may not seem worthwhile.

But it all depends on your approach to risk

Most traders, I think, would settle for a guaranteed £25 and walk away from the match.

But if you are super confident your 'Player A' will go on to win the match, you may feel differently.

And if you do, you now know how to reduce your liability or remove it altogether should the worse happen.