It's the talk of the trading world this week and although I'm a little slow off the mark in discovering this new piece of news, I certainly have plenty to say on the matter. For those who've not heard, Betfair are increasing their (already massively unfair) premium charge from 20% to an incredible top rate of 60% as of next month. Here are full details:
From 18th July 2011 Betfair will be making some changes to the Premium Charge. The current Premium Charge mechanism will remain in place but higher rates may now apply to a small number of customers (less than 0.1% of annual active customers).
Full details of the changes can now be found on the Betfair Charges page under the About Us section of the website. However, the changes can be summarised as follows:
• Customers will only be subject to Premium Charges at higher rates if they satisfy all of the following conditions:
o Lifetime net profits* exceed £250,000
o Lifetime commission generated less than 40% of lifetime gross profits
o Bet in more than 1,000 markets
• Customers that satisfy all of the above conditions will be asked to pay Premium Charges at rates between 40% and 60% on all future exchange activity.
All customers that will be affected by these changes have already been contacted.
I'm not going to go over old ground and write about the basic unfairness of the Premium Charge. We all know that it's pure greed, wrapped up in a fake moral and financial justification. We all know that Betfair (the company whose mantra was always based upon providing a place where winners were welcome) have become a greedy, bloated monopoly, who actually despise those who are successful. They cannot bear the way a select few have benefited from their exchange model to make fantastic money and will do whatever it takes to rob them of a slice of that profit. And why? Well just because they can. That's the benefit of having a monopoly.
But let's focus (and believe me, this is something I have no problem in focusing on!) on what this means for you and me, the average trader who doesn't make a big wage and the newcomers who aspire to one day be successful. Don't be fooled by the £250,000 threshold. If you were to make £25,000 a year from trading (the average wage in the UK today), it would take you 10 years till you begin to get charged. That might seem a long way off but I'm guessing that most of us would want to make more than the average wage. We will certainly want the option of being able to scale up our business and make a more comfortable wage. But let's say you are earning £25k every year and you are 20 years old. By the time you hit 30, you'll be getting charged potentially 60% for the next 40 years - your profit becomes just 10k per year! What if you built your trading up through years of hard slog from nothing and were eventually lucky enough to be making, say, £100,000 per year? It would be another 2 years MINIMUM before you were getting charged 60 GRAND A YEAR! Betunfair take the lion's share of your hard toil, all of it achieved through fair means, where you've given up your day job and taken huge risks financially.
They keep trotting out the old lines that it will only affect 0.1% of account holders and that they want to only penalise those who they feel are taking advantage and not contributing. In reality, that percentage is much higher because they are not just punishing the guys with fast pics, the courtsiders, the big syndicates with huge sums of cash and the boffins with bots. They are forgetting about the little guys, the average Joe at home with just a laptop, a free copy of The Geek's Toy and a Eurosport subscription. The majority of people who want to trade rather than gamble, which is what Betfair is built for, will have aspirations of becoming successful. So this charge affects EVERYONE who has ideas of going full-time.
So where does that leave me? Well, if I start earning £25k a year then I will be more than happy right now! But in a few years time, I'd like to think I will be averaging a fair bit higher than that. And you can bet your bottom dollar that this won't be the end of the unfairness. They have tripled the charge in just 3 years, whose to say what they will introduce in another 3 years? It means one of two things; I either need to completely reconsider taking on trading as a career or I need to find a way around paying the PC. If I was just a newcomer on the ladders, I would probably not even bother. But I've been through a year of hard-ship to get to the stage where I feel I can make it as a trader, so I'm not about to quit now. There are two ways around the PC; move to another exchange (i.e. Betdaq) or start losing more on Betfair to avoid the charge altogether.
There is a movement starting via Facebook which I would urge people to take a look at:
Betfair Fiasco Facebook Page
The big problem with this is that it may be fine for 'big players' and the long term profitable to boycott or move some of their money elsewhere but the likes of myself just can't afford to do that. And it's going to need a lot more than the small number of big players to move their money to make a big difference. It needs ALL of us traders at all levels to make the switch and that includes newbie gamblers who are just learning about trading. I believe it can be done but it's going to need a great deal of organisation and a big helping hand from Betdaq. I remain unconvinced that they are doing anywhere near enough to help drive people towards their site and away from Betfair. Maybe they are happy being second best? I'm sure they make enough from the customers they have to be very happy indeed. How much do they really want to upset the applecart and expand?
In all reality, the best thing that us new and aspirational traders can do is to start making it impossible for the PC to take affect in readiness for when we are consistently profitable. How do we do that? Take a read of this anonymous post, taken from Mark Iverson's Professional Sports Trader blog:
Hey Mark, no you are not missing anything. But this has nothing to do with fast paced trading. Say you start trading tomorrow. You make £10,000 in the first month. Great. Now you go and find a short priced favourite that you are fairly certain will win. Lay it for £5000 on Betfair and back it for £5000 on Daq (you are up £10k so you can do this). If it loses, you are up £15k on Betfair sure but if it wins as expected, you are now still £10,000 up but only £5000 up on Betfair. I have been doing this ever since the Premium Charge came in and have never paid it. By arbing with bookies and the Daq my Betfair P&L is fairly close to zero, they think I don't make any money. Combined with having two accounts, in different names, one at work and one at home so the IP's never get linked, I am assured of never having to pay a charge unless all of the bookies ban me or Betdaq and WBX cease to exist.
So whilst you are not missing anything, you see that this has nothing to do with juggling a winning trade while it is in play, there is no rush to offset.
But don't wait until you are £230k in front before you start reducing your "apparent" Betfair winnings.
30 June 2011 12:18
It's not a perfect solution but it is the only way I have heard of to prevent those pigs at Betunfair getting their snouts into our hard-earned troughs. If anyone knows of any other ways, I'm all ears! But for now, if you are new to trading, think very carefully about the future. And if you are already successful, why not think about setting up a new exchange? Cos until that American market opens up (which should kill Betfair dead in a few short years) we don't have much hope.