Order Books - The Game Changed

The introduction of sell offers has radically shaped the appearance of the market. Previously, prices and portfolio values hid behind the facade of market buy prices. Within just one week, this has switched completely and player's prices are now settling around their previous instant sell prices (During Phase 1 of the Matching Engine).

To some extent, prices now provide a better reflection of the demand in the market for any given player. However, it also appears that there is currently not enough money in the market for prices to:

  1. Result in players hitting their 'value'

  2. Reflect the current consenus of the whole market regarding a player's price

For example, Jadon Sancho has recently dropped from £15.07 to a current price of £13.33. If we say there are currently 800,000 Jadon Sancho shares on the platform, the majority of Sancho holders may still value him at £15+ and so want to keep him at his current price. However, if a small percentage of Sancho holders value Sancho at closer to £13 and put sell offers in around £13, his market price can drop dramatically.

The majority of Sancho holders may still value Sancho at £15+, but his market price drops due to market prices reflecting the lowest sell offers in place. If there was more money in the market, Sancho's price would probably bounce back up closer to £15 again as enterprising traders would buy more at a discounted price. At the moment though, it just does not appear there is enough money to make this happen. Or maybe, traders are just looking elsewhere as there are currently so many valuable players on the platform. The 5X IPD promotion is certainly leading to a shift towards lower priced players. In addition, the recent breaking down of Sancho to Manchester United links is causing a lack of demand in Sancho.

Jadon Sancho's market price has dropped considerably this week due to low sell offers.

Depth of the market

As mentioned above, the buy now price shows you the average price of the lowest 300 sell offers. At the moment we can not see how many sell offers or bids there are for any given player. Once the depth of the market is added, we will be able to make better informed trading decisions by understanding the demand for players better.

Until the Depth of the market is introduced, it will be fairly difficult to predict the true demand for players and so it is more essential than ever not to panic and to avoid making rash decisions based on the current buy prices.

Trading Strategy

Strategy is now more important than ever. There is huge value throughout the market, but it is also very easy to make huge losses on Football Index if buying/selling decisions are timed poorly.

Over the last 12 months there have been plenty of trading advice and strategy blogs posted on the site. Applying these trading principles will ensure huge profits over the next 12 months and below are some of the most useful blogs that are now more useful than ever in what appears to be a more liquid, volatile market.

*The market has become visually much more volatile, but again due to the lowest sell offers dramatically shifting player's prices - it may not be as volatile as it appears.

Key Trading Strategy Blogs to apply to trading with Order Books

*Members - I have created an Order Books Strategy section in the Blogs area of the site which includes topics I believe are currently useful to understand.

Below are some of the main points to takeaway from each of these blogs.

Timing is key

Analysing price movements as well as understanding sentiment and market trends can be essential in getting the timing right on trades.

The more enthusiastic traders grow about a player and the faster the player rises in price without a substantial change in their chances of earning dividends longer term, the riskier a player often becomes.

Long term hold key tip:

  • Rather than considering what a player's price is today versus what it could be in the future based on price comparisons - consider the total amount invested in a player as a percentage of the total market cap and compare this to what percentage of the total market cap this player could account for in the future.

Short term hold key tip:

  • You may be right in your judgement of a shares short term, positive prospects and still not fare particularly well if you overpay for the expected prosperity. (If a player rises due to favourable, temporary, circumstances, the money going into the player is also likely to be temporary too and so this money is likely to come back out again)

What is useful to consider is how sustainable the rise is, what factors are driving the demand and therefore rise, and whether these factors are likely to persist.

Reacting to a reactive market

We currently have a very reactive market due to the 5X IPD promotion. In such a situation it may be best to follow one of the 3 approaches below:

1. React before others

2. Anticipate future reactive risers before the event takes place

3. Stick to buying and holding value players

Key Additional Points

  • Only attempt to catch rises in reaction to events if you have the time and lifestyle to successfully make it work

  • ·Avoid buying players just because they are rising

  • Avoid paying too much for a player because they are currently in good form - a great player is not a great investment if you pay too much for it

  • Do not be worried about unjustified, temporary market declines in value players

How Psychology impacts our trading decisions - Recency Bias & More..

Recency bias can lead to players temporarily rising in price as traders value player's recent events (Strong performances/transfer links/media pull etc) greater than events from the past.

This blog ties into not getting sucked into buying overvalued players and helps us understand why some players can become temporarily overpriced.

Temporary price rises

Players can rocket after one strong game and market trends can fuel rises even when a player's underlying value does not change. With order books in place, we are likely to see even more opportunities to buy players at value prices but temporary rises will also lead to many traders seeing their player's prices fall.

Once a trend shifts, player's prices are likely to drop quicker than before as people compete to get out of holds by sell offers.

Again, this is why it is important to focus on value.

The importance of buying players with potential

Although this may sound very straightforward, it can be quite easy to buy players who do not have very much potential to improve their returns in the future. As explained throughout this blog using analysis on hundreds of players, the best profits are often found in players with high potential to improve their future dividend returns.

This blog also explains why focusing more on future reasons to buy a player instead of looking at past data or player's recent performances can lead the way to success.

Depay's market buy price has dropped 20.25% this week due to Barcelona transfer links

Considering what factors are built into a player’s price is also essential. Depay's recent significant drop in price is a great example of why it may be best to avoid players who's price is already built up based on their current circumstances leading to high, past PB scores.

Once Barcelona transfer links started to circulate, Depay's price dropped. This was due to his price being built up largely on him taking set-pieces for Lyon. Depay already was a quality PB player, but there was not very much potential for his PB returns to improve further.

Nevertheless, if he does remain at Lyon - he could be a very valuable hold given his recent decline in price.

Speculative trading V Investing

All trades are speculative by nature and all trades are a bet as Football Index is a gambling platform. But depending on where the money in the market is coming from and sentiment throughout the market, we often see different kinds of players rising in price. Which players rise in price often depends on if the market takes more of a speculative or investor type of approach.

Investing in terms of Football Index:

  • Focuses on holding players longer term

  • Focuses on potential to earn dividends

  • Focuses on value

  • Benefits from market stability

  • Less concern for market trends

  • Less active trading

Speculative trading in terms of Football Index:

  • Focuses on holding players short term

  • Focuses on gaining capital appreciation

  • Focuses on share price

  • Benefits from market volatility

  • More concern for market trends

  • More active trading

At the moment we are seeing more speculative trading due to the generous 5X IPD promotion which is leading to more market volatility.

It can be useful to gage which kind of approach the market is taking at any given time to make better trading decisions.

Buying out of favour players

When players fail to get game time, pick up an injury or have a run of bad form - often the market can overreact and the player's price can drop considerably.

If the player is fairly young or you just believe the player's chances of earning dividends will improve in the future - it can be best to take advantage of their lower price.

Regression to the mean will often result in the player's form improving again and can subsequently lead to an increase in price, leading to you making a tidy profit.

How to profit from market trends

Stay ahead of the curve - buy players around 15-30 days before you expect the anticipated event to occur for capital appreciation.

Speculative market movements are often carried too far in either direction. When players have increased too much, sell. When players have dropped too much, buy.

When to sell on Football Index?

Well as explained above, timing is often key. Recency bias, market trends, speculative punts, sentiment, changes in player's circumstances and many unpredictable shifts in the platform as a whole can have huge influences on when it is best to sell shares.

Overall, with order books, the visual representation of a player's price is going to change frequently and this will create great opportunities to buy and sell.

'The stock market is a device for transferring money from the impatient to the patient' Warren Buffett

Ultimately, we are always reacting to new information but often the market's prediction on a player's value is wrong. Therefore, it is important to attempt to value players independently and then to sell according to the player's price movement. Generally, when a player appears undervalued - buy more. When the player appears overvalued - sell.

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