Patterned after online brokerages such as Robinhood that make stock trading accessible for a wide range of investors, Sporttrade bills itself as a platform that allows trading on sports in the same manner as trading on stocks. Exchange wagering offers bettors an alternative to traditional sports wagering — where a customer places a bet against the house and pays a commission in the form of vigorish.
While Sporttrade also takes a commission on winning trades, the vig is much lower — in most cases around 2% (versus the standard -110 pricing offered on a traditional sports bet). New Jersey is the first state with legalized sports betting to approve Sporttrade for trading on live sports.
“We are thrilled to be live in the state of New Jersey with the first sports trading platform,” Sporttrade CEO Alex Kane told Sports Handle. “We set out to create a better and more modern sports betting platform tapping into Americans’ passion for trading. What we’ve launched is the only differentiated sports betting platform in the U.S. We believe we are defining a whole new category of sports wagering — trading sports.”
Prophet Exchange, one of Sporttrade’s top competitors, went live in New Jersey in late August. Unlike Prophet, Sporttrade views itself as an institutional-grade sports trading platform with similar characteristics to a stock or cryptocurrency exchange. Prophet matches bets on sports events between users on a peer-to-peer platform.
And just like that, it's football season 🤩
Here's some of the games and markets we're watching closely this week! https://t.co/CCWkzBkgQa
— Sporttrade (@sporttrade_app) September 14, 2022
How it works
Since a number of Wall Street traders reside in New Jersey and commute into work each day from the Garden State, someone with a deep understanding of capital markets is an ideal user for the Sporttrade platform. A person can even make trades on the mobile platform on a commute home once a train crosses state lines back into New Jersey.
Take a matchup such as Wednesday night’s Major League Baseball contest between the Milwaukee Brewers and St. Louis Cardinals. With Corbin Burnes on the mound, the Brewers opened as -122 moneyline favorites over the homestanding Cardinals (+100). The -122 odds on the Brewers translates to an implied win probability of around 55%. Think of Sporttrade as an intermediary between buyers and sellers, just as Uber serves as a conduit between drivers and passengers.
"Why make something so different?"
— Sporttrade (@sporttrade_app) August 25, 2022
Under a 0-100 price convention, the Brewers’ 55% win probability translates into one share of the Brewers to win at $55. Since the contract settles at $100, a Brewers win will provide a payout of $45 ($100 minus $55) minus a commission of 2% on the profit on the winning trade. If the Cardinals win, the contract settles at zero and the customer loses $55 on the wager. For those who purchased a buy contract on the Cardinals at $45, the trade will pay $53.90 after the commission.
The role of a market maker
Sporttrade does not guarantee a price; it just facilitates a transaction between a buyer and a seller. Heading into the matchup, a contingent of market participants on the buy side may view the Brewers as overvalued at $55. At the same time, a seller of a Brewers contract may look to fetch more than $55 on the open market. This is where market makers come into play.
When there is not enough liquidity to match customers directly together, market makers will play a critical function on the exchange, Kane explains. Market makers guarantee to the exchange that they will buy and sell all of the listed outcomes at a certain spread. In certain cases, a market maker could offer to buy the Brewers to win at $54, while simultaneously offering to sell Milwaukee at $56.
Liquidity is typically viewed as how quickly an asset can be bought and sold. But in an open marketplace such as Sporttrade, liquidity can also refer to the level of trading activity that is taking place. When there’s a decent amount of supply and demand in a given market (in this case the Brewers-Cardinals matchup), it isn’t hard to match buyers and sellers together. With a frenzy of trading, the market is one that is highly liquid.
We're not a peer-to-peer exchange. There will be market makers that provide liquidity. All orders will be accepted at all times prior to the conclusion of a game/outcome. At times of high volatility only limit orders will be accepted, but you'll always be able to submit orders.
— Sporttrade (@sporttrade_app) May 18, 2021
While Sporttrade did not disclose the individual names of the market makers, Kane did address the types of companies that serve in that capacity. The market makers are licensed firms — in some cases they are operating in Europe, in others they are betting syndicates, he noted. A third subset comes from firms that already serve as market makers in the U.S. on capital markets. The market makers also compete with each other, which results in tighter spreads.
“The most important thing is that they are licensed, they are fully funding the participation on our menu,” Kane told Sports Handle. “If you win $5.38, you get it from Sporttrade. You don’t have to worry about finding a counterparty to pay your winnings. All winnings are insured and guaranteed.”
During Sporttrade’s soft launch, Kane has been encouraged about the performance of the exchange and the manner in which people are using it. The spreads have been incredibly tight, he emphasized, typically in the range of 50 cents to a dollar per trade. As a rule of thumb in financial markets, when there is considerable liquidity in a market, the spreads are usually tighter. He has also been pleased with Sporttrade’s ability to take on sizable bets and with how quickly trades have been executed. Thus far, Kane has not seen any delays, limits, or lockouts.
A key selling point for Sporttrade is speed of use. Kane takes exception to the dreaded “spinning wheel” on in-game markets, a thorn in the side for hardened bettors. When you’re trading in a fast-paced pro sports contest, you don’t have time to wait five seconds as the wheel continues to spin, he indicated.
“If you want to bet $1,000, we don’t want the bettors to have to wait a minute, then inform them that we’ll let you bet $200 — that won’t happen on our platform because it’s institutional-grade technology,” Kane said.
The platform has the capability to accept limit orders, a function that allows bettors to move in and out of their positions as a trader can on the stock market. A limit order allows someone to buy or sell at a specific price, giving the trader the ability to control their risk appetite.
The ability to trade in and out of your positions whenever you choose has opened new doors to sports traders 🚪@SporttradeKoob takes a look at a few angles he's eying for the upcoming #NFL season 📝:https://t.co/spoPqmYDfq
— Sporttrade (@sporttrade_app) August 9, 2022
For instance, the Cardinals took a 2-1 lead on Wednesday on a single by Yadier Molina in the bottom of the second. On the in-game market, the price swung in favor of St. Louis.
An astute trader who bought the Cardinals at $45 before the game also has the option of setting a limit sell order at a certain price. When a limit sell order is placed, the order will only be executed at the limit price you set or an amount that is higher. By the time Lars Nootbaar homered to center in the bottom of the fifth for a 3-1 Cards lead, the odds on St. Louis improved dramatically. Let’s say the trader set the limit sell order at $85. Theoretically, the contract could be sold to a buyer at $85, providing the seller with a payout of $39.20 ($85 minus $45 minus 80 cents).
By unloading the position in the middle of a game, the trader avoids the hassle of sweating out a potential Brewers comeback. The trade is the equivalent of a cash-out. (The Cardinals eventually prevailed 4-1.)
Sporttrade has already gained market access in two other states: Colorado and Louisiana. The company does not have an exact timeline for rollout in the other states, but it is targeting mid-2023 for expansion beyond New Jersey.