How Sports Betting Boom May Affect Forex Trading

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How Sports Betting Boom May Affect Forex Trading

The global sports betting market is accelerating. In 2022, global sports betting account for more than $83 billion, and sports betting is expected to continue to rise by about 10% a year for the next seven years. Sports betting has continued to expand where it can operate, allowing customers to bet on games and different parts of a game. Sports betting apps have been one of the most prolific parts of the sports betting experience. In many places where sports betting is not legal, customers need to make their way to brick-and-mortar establishments to place bets on sporting events. As online sports betting grows around the globe, apps have dominated the landscape, allowing customers to bet wherever they can access the internet. During the initial outbreak of COVID-19, sporting events were pushed to the sidelines as lockdowns and quarantines temporarily stopped sporting events and, therefore, any sports betting. During this period, many sports betters were introduced to the capital markets, where they could use the same strategies to speculate.

The Acceleration in Sports Betting

Sports betting activities have surged globally, and the United States is all in on online gambling. Ahead of 2022/2023, expectations were that nearly 47 million Americans would place a bet on a National Football League game. In 2021, the sports betting industry generated $4.28 billion in revenue on 57.22 billion in sports bets. According to Investment Bank Morgan Stanley, revenue in the online sports betting arena could eclipse $7 billion by 2025. The acceleration in sports betting in the United States accelerated when the Supreme Court in the United States reversed the Professional and Amateur Sports Protection Act, which had made sports betting in the United States illegal outside of the state of Nevada.

In the four years that followed the Supreme Court decision to abolish the inability for consumers to bet outside of Nevada, 31 States have made sports betting legal. Sports betting is available while you are in a state via an app or in person in many sporting arenas and gambling establishments.

Sports Betting and Trading Payouts

Several aspects of sports betting is similar to trading. For those who take sports betting seriously, the process is far from gambling. The goal is to gain an advantage in a situation and generate a bet with a strong reward relative to the risk you plan to take.

One of the most significant differences in sports betting relative to forex trading is that the house has a considerable advantage and generally provides favorable odds. The house in sports betting is the market maker. Similar to market makers in futures, ETF, and CFD trading, there is a market maker in sports betting. When you trade futures, ETFs, or CFDS, the market maker takes a bid-offer spread or, occasionally, a commission as their compensation for helping you place your trade. The bid/ask spread is the difference between where a market maker will purchase and sell a security you want to buy or sell. A wider spread will generally occur when an asset is less liquid, and more difficult for a market maker to enter and exit a market with either a profit or no loss.

The process is similar when it comes to sports betting. The house will allow you to bet on a team where you speculate that the team or individual will win or lose, but the odds will be in the house's favor. This advantage is called the house edge. It's a formula that calculates the house standard's profit on every bet. When you place a sports bet on an app, you need to understand that house edge. When you see a plus in front of a number like +110, you are alerted that the team you are betting on is considered the underdog. In sports betting, you get a higher percentage payout when you bet on the underdog since they are less likely to win.

For example, if you see that the house is willing to pay $110 for a bet that team X beats team Y, you would receive $110 for every $100 you bet team X beats team Y. So if the amount you bet were $100, you will receive $110 if you won your bet. You are betting on the favorite if you see a minus before a payout such as -110. It means that for every $110 you bet, you would win $100. This does not mean you would lose money if you win; it means you need to bet more to receive a lower payout. So, if you bet that team X would beat team Y and the payout was -110, you would receive your $110 back plus an additional $100.

The spread that a house takes in sports betting is generally a lot larger than the spread taken in capital markets trading. On bets considered 50/50, you will usually see payouts of –110 or +110. The payout is approximately 10% more or less than you bet, which means the 50/50 bet is not 50/50. If you bet $110 and can win $100 if you win, the bet is 10% less than the 50/50 odds, which means you have a 55/45 chance.

The payouts in sports betting differ from trading in that they are usually all or nothing. Instead of buying a currency pair or stock and making an amount customized to the market movements, you have a fixed payout in sports betting.

Risk Management

One of the constants between sports betting and forex trading is the need for risk management. The house, the market maker, and the speculator must use risk management to succeed over time. Like a market maker, the house looks at all of its outstanding bets to determine which scenarios will generate a significant loss in its betting portfolio. The market maker looks at what could occur, such as an outsized move, that will generate losses in its portfolio.

To protect against outsize losses again, the betting house and the capital markets market maker will lay off some of their bets to ensure that the losses fall within the guidelines they expect to experience. For example, if the house receives bets that team A will defeat team B throughout a week, they will move the payout and odds to account for the bets. Eventually, if the house gets too many bets that team A will defeat team B, they will start to look for other betting houses to lay off some of their wagers. The same situation occurs in the forex market. If a dealer continues to get one-way bets, they will widen the bid-offer spread, trying to make it less attractive for customers to speculate in a specific direction.

Speculators also need to have a sound risk management plan. If you don't determine how much you might lose from a specific trade in the capital markets, you might lose a lot more than you expected. A stop loss is one of the best ways to execute risk management. A stop loss order is an order you place with the broker that allows you to exit a position when it rises or falls to a specific level. Stop loss might be based on a particular price point or percentage loss. Either way, having a distinct loss in mind is helpful, so you don't risk ruin on one trade.

The Bottom Line

The upshot is that the combination of the outbreak of COVID and the Supreme Court law that allowed states in the United States other than Nevada to provide betting has accelerated the sports betting industry. Several TV shows have blossomed recently that focus on sports betting. Sports betting is also now allowed in arenas where the games are played.

During COVID and the initial stages of the pandemic, all live sporting events were canceled. The disruption in live events created a void that forex trading took. Many sports betters saw the capital markets as a similar activity with similar odds and risk management to sports betting. They started to increase their exposure to forex trading when sports betting was on hiatus. Despite some considering sports betting gambling, people who do it for a living see the concept as similar to trading. The techniques used to place bets and the risk management used to ensure you have serious risk-adjusted returns are similar and have allowed forex trading to attract many sport betting enthusiasts.

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