so every now and again on my videos I get some comments and saying please
Peter please do a video on the premium charge and I you know have said that I
will do one so I sat down this week to do one but I realized it's such a
wide-ranging in a motive topic that it was going to take you know more than one
video to do it took several takes quite a few hours and realized that I
completely failed in terms of doing a decent video so I decided what I'm going
to do is break it down into digestible chunks that you can fully understand for
those people that don't understand what the premium charge is it's a charge
that's levied on elite traders and I use those words very carefully
because lots of people have reacted negatively to premium charge but it
actually affects very few people and there are a lot of people out there that
try and talk about it confidently that don't even pay it and certainly do not
pay the high rate of premium charge from my own experience I would was one of the
first payers of premium charge when it was first introduced in 2008 and in July
2011 when it was significantly revised I went right on the top right so I know a
lot about it but I've also made it an objective of mine to fully understand
the reasons behind it and several coincidences have occurred that have
allowed me to get a really deep understanding of why it's in place and
also how many people it affects and how so you know that's what I'm gonna
discuss in this video is not some of the more detail and history or the emotive
side of it or my direct opinion on it what I'm going to present to you first
of all is just a summary of the reasons why people say that this exists and it's
because of a structural issue in terms of the way that the exchanges work when
exchanges were first created they were designed to be better places for
gamblers to work but when people started trading on exchanges like myself
it created a structural imbalance in terms of the way that the market works
that's how exchanges would like it positioned you know you'll understand
and see on the section that I'm gonna do after this little bit to camera and
where that comes from but we're going to leave the discussion
about whether it's valid and so on for another video but it's interesting to
see that other exchanges matchbook have modified their terms and
additions to allow a charge like this to be in place because there is a
structural issue and beyond what you see on this video which we'll discuss in
another video but if you don't pay at the moment it's only applies to a small
section of the ecosystem within the exchange I'm not going to be an
apologist for it because it you know I obviously pay significant sums from it
but like I said we'll leave that for the next video and in this video we're just
going to focus on why trading is just so much better than gambling primarily
because of the amount of Commission that you pay but it also explains why the
premium charge is in place please subscribe to our YouTube channel like
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visit Bettinger calm and download a free trial so the best way to look at premium
charge is to look at a traditional gambler and to look at a trader but also
let's examine you know now and again you hear about special deals that are being
put out there let's examine the true structure of what those special deals
are because they're not actually any different from paying the premium charge
anyhow but if I show you this spreadsheet this will give you guidance
in terms of what you're looking at and why the charge exists how it's balanced
and what that looks like if you hear the term special deal because you know all
of the videos that I've seen don't really explain it very well there's no
depth of structure or depth to it but obviously if you're paying it then you
sort of want to understand all of that and that's where this spreadsheet has
come from so first of all if we are gonna set these two breaks exactly the
same here so we've got the base rate Commission our base rate varies but
again you know it's important that we simplify things otherwise it becomes
impossible to understand so I'm not gonna talk specifics here and there are
specifics and variations within the calculations but I'm not going to go
into that we're just gonna have a plain vanilla
look to how all of this works but if we look at the base race Commission the
base rate is what you pay when you actively bet or trade in a market on an
exchange and on the left-hand column we have the gambler and on the right-hand
column we have the trader and they're basically I'll explain what each one of
these things are we've traded eight markets in total or with bet on any
markets now the gambler is gonna win or lose large amounts of money that is the
difference between gambling trading you you put a hundred down you want to win a
hundred back or but you could lose a hundred when you're trading you put a
hundred down but you could win ten or you could lose ten and as if you've got
no discipline and then you could win ten and then lose 100 but in all intents and
purposes when you're trading you're gonna win a percentage of your bank you
know end up positive a bit or negative a bit using the same stake as a gambler
but the gambler takes outright risk so you can see here the gambler wins 110
pound on the first market that they actively have a bet on then they lose
100 on the next then they win 110 and they lose 100 when I'm content lose 100
110 lose 100 so overall in all of these eight markets that they've been active
on they won four hundred and forty pound but they lost four hundred leaving them
with a net profit of 40 pounds so if we look over here the trader has also made
forty pound but of course they're working in a different manner to the way
that you would do when you're doing traditional gambling trading is gambling
it's just doing it a different way but if you look here you can see that
we're saying that rather than winning 110 and then losing a hundred were
saying that when they win they win two and fifty because they're trading the
price movement they're gambling on the price movement they're not gambling on
the outright result so you can see here that when they win they win much less
but generally their strike rate will be higher so I've put the strike rates down
here you can see for the gambler it's 50/50 they're winning and they're losing
in roughly equal rates but they're winning slightly more than they're
losing that's where they're making their profit a traders strike rate will be
much higher that is inevitable because they again I'm not going to explain in
great depth maybe I should do a video on that but
strike rate for a trader should always be quite high and or higher than 5050 so
here I've set the strike rate 80% and you can see here that four times out of
five they've won 12 pound 50 but that last
trade goes through and they mess it up and they lose 10 pound so we've got four
lots of twelve pound 50 making fifty pound and when they lose they lose a
tenner and this is pretty much what gambling and trading looks like this is
a pretty good approximation but you can see they're both ended up with a net
profit of 40 pound overall but this is why a trading is is such a great way of
participating in gambling markets because the amount of Commission that
you pay on your overall trade is based upon your net profits not based upon
your stake plus the return which is what happens when you're gambling it's on the
amount of profit that you make in that particular market at that moment in time
that's why trading has been so brilliant because you only pay if you profit
whereas in gambling you're paying open-ended risk basically so they've
both made 40 pounds in very different ways they're both realistic simulations
of how either style works but you can basically see that they've ended up with
a profit of 40 pound so let's look at the Commission that was charged we're
using a base rate of 5% here and you can see that the Commission has added up to
22 pounds so 5% of 110 pound is 5.50 that occurred four times subtitling at
22 pound so after Commission that forty pound
turns into eighteen pound a profit the gambler has lost most of their profit in
Commission that goes to the house effectively it goes to the betting
exchange however if we look over here when you're actively trading we made
forty pound as well over this period and we have also paid five percent
commission but can you see that just adds up to two pound 50 so we retain
most of the profit within the market trading is much more efficient and then
it's a much better way of squeezing a profit out of a market higher strike
rate lower Commission so we've already examined strike rates here and we
already know what the net profit is it's 40 pound on each but this is where
everything begins to diverge because the Commission
that was paid by the person that was gambling is effectively fifty five
percent of their total return can you see more than half of the amount of
money that they made through being able to make decent selections when trading
has ended up in the pockets of the exchange however when you're actively
trading obviously your commission is much lower so you can see here that
we've ended up with a commission of six point two to five percent we've only
paid to pound fifty on for Japan so can you see there's a massive mismatch here
this is why from a betting the sports book a trading perspective gamblers are
welcomed with open arms because generally speaking they tends to lose
money or pay very very high rates of commission in respect of their total
return if you look at traders the amount of commission that they paid is quite
small in comparison to the amount that's generated by your traditional gambler so
the premium charge was introduced to basically balance that out and you can
see here if we top up the premium charge on the trading side of things to 40%
then there would be an additional charge of 13 pound 50 on top of the amount of
commission that has been paid already now if we look if we modify this and
change the rates to 20 percent then you can see that they're still even if
you're paying premium charge at 20 percent there's still a massive gap
between that and the person and that is actively gambling and that's a
structural gap that occurs within the markets when you look at it in
retrospect when the exchanges were created probably they didn't expect
people to actively trade people like me and others around at that particular
moment in time started trading because we realized there's an opportunity there
but if they would have figured out exactly how everything would develop
from there they may have put a slightly different charging structure in place
straight away because the difference between paying a commission on a bet and
the amount of money that you could possibly yarn through betting is vastly
different from the amount that you would make through trading so when we were
looking at the spreadsheet a second ago one of the things that I did was I
mentioned but didn't about special deals so you know there
has been some discussion around people getting special deals but whether a deal
is special and all depends upon what your strike rate is basically you know
if you win and lose a lot relatively frequently then your overall commission
that you pay as I think I've shown you already is going to be quite high in
comparison to the amount of profits that you make so you could sort of say you
know profits are taking money out of the system commissioners putting it in so
you know if you if you have a lower strike rate then basically the more
Commission that you pay and the more and the less you take out the system that's
sort of you know how I'm trying to summarize I hope that makes sense but
let's look at special deals so let's say that you're paying Commission charge
Commission charge you're paying premium charge and you're paying it at a fair
old whack so you know let's say that you're on a 40% Commission rate the band
and Sonia from Betfair comes along and says well okay I'll tell you what we'll
do we're going to fix your Commission at 7% so you know you can have 7% on every
single correct trade correct bet that you put through the market but we'll
drop the charge the premium charge completely you only pay a higher level
of base rate in Commission so if we put 7% in instead of 5% and we assume that
the strike rate remains the same for the gambler stroke trader that is taking
advantage of this particular deal can you see that the amount of commission
that they're paying against them at a profit that they make absolutely
skyrockets so we're foot if they were at 5% the standard base rate you can see
them paying 55% if we drop them to 4% they're paying 44% but if we bump them
up to 6% can you see there something you're paying an absolute fortune so
it's not really applicable to the person on the right because their Commission
rate is going to be so low already that they're going to have to be topped up by
premium charge but if somebody has a high rate of commission that they're
paying already fixing it adding at a deal of say
six percent instead of paying premium charge of 40 percent sounds like an
absolutely fantastic deal but it's not so you know if I was ever offered a
fixed-rate deal saying that I would probably take it
because the way that my account is structured is sort of makes sense that I
would would take that deal but if somebody was on a lower strike right
it's all-around strike rate strike rate is low then a fixed-rate deal is bad but
if your strike rate is high then a fixed-rate deal is excellent but the
likelihood is and all of the evidence that I've seen so far suggests that it's
only people on lowest records that will get a special deal for this exact reason
so if you don't understand what the premium charge is or some of the
discussion around it don't worry about that because I will cover a separate
video specifically on that this video really is for people who have some sort
of an understanding but want to understand why it's in place but yeah
watch out and I'll do another video for you
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