Insurance theory Part 2
The anti-insurer argument reasonably enough states that taking insurance cover dilutes potential profits and additionally makes recovery of trade if it is going against you more difficult.
A similar argument was made a few years ago on another forum which was far harsher in its condemnation of the insurance theory. It suggested that this style of trading was nothing more than "smoke & mirrors", that is, a way to masquerade a straightforward punt as a trade. This thread turned into a long running discussion that I eventually entered into as a defender of this particular way of trading (notably Gundulf stood firm & loyal in our corner).
My main argument rested on the 20% principle. That is, we would need to be successful in 6 out of ten trades to be in profit. This percentage figure was arrived at by virtue of the way in which trades were staked. A very high percentage of the LTF.com`s TOTDs yield profits of around £10-£15 from a total initial stake of around £50. Conversely, losses are also around that £10-£15 figure. Yes, there are occasional 100% blow outs (but seriously few over the six years we have traded in this way)
So precise, correct staking is essential. What are the other benefits? The primary one is bank protection. More cover taken theoretically means smaller losses overall.From the point of view of LTF.com as a service with paying subscribers it is important that our clients should feel comfortable in the knowledge that their Betfair balance is not going to take a hammering each time they follow one of our trades. Secondly, I feel that the "creative" element of insurance trading is of benefit, particularly to new traders. They are made more aware of the how the Betfair markets are inter dependent on one another, thus allowing the trader to have a better understanding of odds movement. Some of our trades - well mine in particular, - look over complicated using two, three or even four different markets - but they do become easier to manage in -play once you have mastered the technique of knowing what a price will be at any given point in the game.Thirdly, the very mathematical nature of these type of trades, can preclude the trader from having to have in-depth knowledge of the teams involved. It makes match selection less daunting and time consuming. We can talk about "value" and "wrong prices" but spotting these surely is determined in part by your specific knowledge of football, not football markets. I need to note here that Ian`s description of "value" is connected with risk v reward which is extremely valid and not the same as my previous point.
All the above is not meant to be a carved in stone defence of insurance trading but, as should be the case in discussions like these, another reminder that there are many ways to trade and it is up to the individual to find out for himself what "style" suits him best.