Order Books.
We shouldn’t underestimate what a big impact these are going to have on day to day trading. It’s probably the biggest single innovation since Performance Dividends were introduced.
This can either be viewed with fear and uncertainty, or as an opportunity.
I prefer the last one. A trader with a good understanding of what players are really worth could do very well out of Order Books.
I’d expect the losers to be the traders who over rely on historic data, social media chatter or short term price movements in their judgements.
Right now, we only really have 5 main actions we can do: Buy. Don’t Buy. Hold. Instant Sell. Market Sell.
That’s it.
With Order Books, we can Buy or Market Sell but say how much we are willing to buy or sell for. That flexes the price.
Then, the rest of the market will decide whether our offer is taken up. That flexes the timing.
This throws up way more variables.
For a competent trader, that freedom can mean greater opportunity to profit.
With the sheer number of hours I put into player research and assessing the trends ahead, on the site we have a clear advantage when it comes to judging when a player is too expensive or too cheap.
With Order Books, we may get more opportunities to exploit this knowledge than we do now.
But for a weak trader, the extra freedom can just be extra rope with which to hang themselves. With greater freedom over your buy and sell price, it could be easier to get that wrong simply because you’ve got more options and more ways you can screw it up.
And we will probably have much more information available. Instead of relying on social media to tell us who is in demand or not, we should be able to see where the money really is.
This is interesting and will open up a whole new form of analysis BUT it will also be heavily open to manipulation as people put up fake buy/sell orders etc to try to convince people a player is in or out of fashion.
This will make having better knowledge of which players have real ability and which don’t more important than ever.
I have some experience of dealing with these issues but as to exactly how it will apply on FI it is going to be a learning curve for all of us.
That could be scary but it doesn’t have to be.
I’m going to devote plenty of time in the coming weeks to discussing Order Books because they will have a big impact on how much money we can make.
I recommend starting with my Primer on Order Books. Particularly if you are starting from “What the hell is an Order Book!?” (You are not alone believe me).
It’s a good refresher whatever – I re-read it this morning and it was good to remind myself! It was written in November 2018 and it still holds up (shows how long we have been waiting!).
Today, I thought it would be helpful to look at a real trading example and consider what I might have done differently if I could have used an Order Book.
Bruno Fernandes In A World with Order Books
Bruno is a player everyone will be familiar with by now, so let’s use him as an example.
I’ve also bought and sold him multiple times in the past two years before his most recent explosion so let’s look back at what I may have done differently if there had been an Order Book.
How might I have bought Bruno in an Order Book?
Fernandes first seriously came to my attention after a run of good scores (240, 206, 196) in February 2018 (Bear in mind, in the old scoring system these totals were much more impressive).
Looking at the underlying real match numbers from his career, I was convinced. These big scores were no fluke – he was the real deal. And the more we saw him play at Sporting the more true that looked.
This is a classic example of why my extra work and effort pays off. I was able to get him early because I knew something that very few people did – he was real FI quality. At this point, most people had no idea who he was and thought he was just some random player in the Portuguese league.
Side note: Would we get a high performing young Portuguese player at that bargain bucket price today? Doubtful.
Any young player in the Portuguese or Dutch leagues can be bought heavily just for having a pulse these days. But this wasn’t quite so fashionable a couple of years ago.
Players like Fernandes blazed the trail and now lots of them get heavy buying. It shows how things keep changing and get harder over time. But we still get a huge advantage by knowing who is the real deal and who isn’t.
What did I do?
This is a heavy, heavy buy scenario for me. When you have a very suitable FI player with a path to a good transfer for that kind of extreme value, this is where I go aggressive.
Like a good poker player who knows he has a 95% chance of having the best hand, you go all in with a big chunk of your bank roll and if you get unlucky and lose screw it. You still made a good call and you will win over the long term when playing like that.
I simply bought a large holding at the offered FI buy price (around 50p). With no Order Book, that’s our only option.
What could I have done differently with an Order Book?
An Order Book might have given me the chance to squeeze out some additional value here.
Once I was convinced about Fernandes’s quality through Scouting I would probably still have bought heavily at the 50p mark in Feb 2018 (I can’t recall the exact price, it was around there). He was clearly worth that so I doubt I would have wanted to mess around and miss the opportunity.
Very soon after though, Sporting drew Atletico Madrid in the Europa – a tough tie.
With the prospect of being knocked out, I might reason that a short term trader or a trader who doesn’t know how good Bruno really is might be happy to take 45p for his Fernandes shares – giving me a 10% discount.
If I was able to buy more for 45p I would likely have doubled down to strengthen my holding because I was highly confident on this trade.
Because I knew Fernandes was very likely to be a slam dunk profit, I could take advantage of a trader who didn’t know that or who didn’t have my kind of patience.
That would have turned out very well for me. The guy selling will feel bad now.
But, what if I got it wrong? What if the guy selling was right and the player went on to tank even lower?
Well, at least I’ve bought the player cheaper than I otherwise might have so that is something.
But, what if this cheap price has tempted me into buying a dud I would otherwise have left alone?
A bad player with a discount is still a bad player and I think this is the risk when buying on the Order Book for an apparent “discount”.
What else does this tell us?
The key difference in the above scenario is that I only need 1 other trader with sufficient shares to decide to sell to get the buy price I want.
Let’s think about that for a second.
As things stand, in order to get that same 10% discount I need a lot of traders to decide to sell at the same time.
That probably means I need to wait for some major bad news for the player first or just accept I need to pay the price on the tin.
In theory, it should be easier than it is now to get a discount on a player even when they are on the way up. We don’t necessarily have to wait for the market sentiment to go against them and everyone to be selling.
We just need one person to sell and that means there could be many more opportunities to pick up discounts on good players.
It’s also going to be a lot more directly competitive.
Two traders doing a deal will both think they are winning and one will likely be proved right eventually.
But the trader with the better knowledge will be right more often and with the additional effort from Scouting on the site etc we can try to make sure that is us more often than not.
These extra 5-10%’s here and there may not sound a lot but over a season that is going to add up to a huge swing in our overall returns.
That can be up or down depending on how well we play it – it’s not just an easy win for everyone.
It’s another skill we’ll need to master.
How might I have sold Bruno in an Order Book?
There were two major opportunities where I seriously considered selling Bruno.
The first was the 2019 Summer transfer window, when an EPL move looked on but then collapsed, and then the second was shortly before or even after the Manchester United move happened this January.
What did I do?
By April 2019 he had risen from the 50p buy price towards £2.30. A huge gain. In this case, I market sold. The transfer felt a bit ropey and if it collapsed it is a long old wait from there to January or next Summer.
This is my most common approach to transfers in the current system – once the transfer falls over you can’t market sell the player, and Instant Sell is almost always a poor outcome.
So, selling as the hype for the transfer builds and others are still happy to buy rather than hanging around too long is generally the play I make.
This was different in January 2020, though. Whilst the transfer was off again and on again, I was happy to hold because it wasn’t far until the next transfer window, I was very confident in the players ability, and as far as I knew he also had Euro 2020 to come as well.
There were reasons to hold in the near future even if the transfer fell over, so I was comfortable with the risk.
Side note: I got lucky here both times. The transfer fell over in Summer 2019 when I wanted it to, and it happened in January 2020 when I wanted it to.
It could have gone the other way both times. That’s ok. I can’t accurately predict the outcome of transfers more than any reasonably well informed person who follows football. And I don’t try.
The trading skill here is making bets that are very difficult for me to lose.
Holding Bruno through all the will he/won’t he gossip in January was easy for me because I’d decided I was good with it no matter what. If it happened, jackpot. If it didn’t, I can wait until Summer.
What could I have done differently with an Order Book?
Order Books probably wouldn’t change my decision about selling or holding.
But, they might give me better information for judging when I might want to sell. I might be able to juice a bit more profit out of that.
Let’s take a quick look at a scary chart.
This ain’t that scary really.
This shows “market depth” and that’s a term we will want to get familiar with.
Basically, it shows how many people want to buy (green) and how many want to sell (red) and what price people are willing to take or pay.
In January 2020 when deciding whether to sell Bruno the typical trader decision process might go something like this:
– Look at the market and see Bruno is up 15p today and is leading the media points chart.
– Check social media, which is full of positive stories with traders bigging him up.
– Check whatever chat group and consult with trading legend “Big Chris” (who swears he has entirely completed a Merlin 1997 EPL Football Sticker book so doesn’t mess around).
– Check the news and try to work out how likely the move might be to go ahead.
This is all a bit… ropey.
We can see him going up in price but are these long term investors or people just cancelling their sell queue because they want to snag the media dividend he’s about to win? Will they be gone tomorrow?
There are positive stories on Twitter but who are these guys? Are they innocent traders who are just taking time out of their day to wish him well? Or do they hold buckets of shares and are pushing people in that direction for self interest?
Does Big Chris really know his stuff or did he photoshop his portfolio screenshot to look good?
Most experienced traders will have learnt to read all this stuff but not take it too seriously. Some people have a good “gut feel” for judging a sell point, others struggle with it. It isn’t easy. But we may be about to get a very useful tool to help.
With Market Depth information, I have something a bit more concrete – I can see where the money really is.
If all those social media pumpers are saying buy buy buy in public but clicking sell sell sell in private – it will probably appear here in the form of a big red wall.
It will be a better indicator of “sentiment” than any chat group or twitter feed because it is backed up by real money. A tweet to support a player costs you nothing. But to publically support a player here you have to put money down.
In my Primer on Order Books (link at the top) I discuss how this might not always be quite what it seems and how this picture can be manipulated.
But for now, let’s just take it at face value. We generally will be able to particularly for the more expensive/established players – most sharks will tend to target the cheaper end of the market where they can push prices around a lot more easily.
So.
When I first sold Bruno in April 2019 for £2.30 during the transfer window, I did so based on:
– my view that if the transfer fell over, I have too long to wait until the next positive event so I didn’t want to risk it.
– a gut feel that I’d probably pushed it as far as I am willing to, based on my perception of social media gossip/transfer news etc.
This wasn’t bad. A big profit was locked in. But he did go as high as £2.87 by July so I could have pushed it a bit further. (He also tanked down to £2 again so at least I avoided that!).
With better information from the Market Depth chart, I might have good cause to push my luck a bit further in future if I like what I am seeing.
If there is a big, healthy green wall with plenty of traders offering to buy, I’m now more likely to hang in a bit longer. Why?
As there is real money behind this green wall, I can be reasonably confident that this is genuine positive sentiment rather than just social media gossip.
And if I see the red wall getting bigger, I’ll know that more and more traders are gearing up to sell and I might be pushing my luck soon.
If I use this new information well, I might be able to get a bit closer to selling at the high without taking on too much risk.
What else does this tell us?
The Order Book can also give me a bit of insurance against an event going against me.
Depending on how FI implement it, I might be able to place a Sell Order to sell if the price drops to a certain point.
Let’s say I started the trade at 50p, and it’s now £2.30. I’m hoping it might get to £2.50 but I’m worried the transfer may fall over and I’ll lose out.
I could set a sell order to execute if the price drops to £2.20 to protect me if the price falls because the transfer collapses.
An unlucky speculator, hoping to pick up some “cheap” Bruno for £2.20 might be left holding that unwanted heavy bag.
If there are a lot of Buy Orders on the market, I might be confident that one of them will forget to remove their Buy Order in time after the news breaks that the transfer is off, and their buy order is automatically executed.
They wouldn’t choose to buy now! But they did choose to do it at some point, probably when things looked sunnier. But if they weren’t paying attention to the news tough luck – they have bought automatically.
As long as I am not too greedy with my Sell Price, the people who do monitor the news will likely sell quickly, dropping the price, and executing my Sell Order for me without my input.
This is an important point to understand and why I said this additional freedom is going to give people lots of opportunities to get themselves into trouble if they are not careful.
It opens up a lot of opportunities for crafty traders to outplay others and I think this is why lots of casual traders are quite right to be a bit wary.
Final Thoughts
I’m looking forward to Order Books, I think it will give us some great information and also give us more options which will let skilled traders make the most of the better information they have.
Particularly now where we can barely sell anything, it feels a bit stale. Order Books are a timely way out of the spreads lockdown and that might be what we hear from Adam Cole on Wednesday.
The social media chatter/banter about who is good or not will always be there. But if we see Market Depth in play it will become much more obvious which players really have strong support behind them.
This might make it more difficult for pumpers to keep at it with a straight face. However, it will not mean that people stop making stupid decisions.
Prices can vary wildly because they are deliberately pumped but I would say the biggest factor in a player becoming overvalued is often a genuinely held but incorrect belief about the high quality of the player and their suitability for FI.
Most people can’t/won’t get over the fact that FI Good and Real Life Good are not always the same thing and it hurts them.
And the introduction of Order Books is going to make no difference to that at all.
It will however give good, well informed traders more opportunities to do well.
The better your knowledge of who has real value and who doesn’t, the more you should be able to make of this.
I’ll be running a Live Blog on Wednesday for the announcement so remember to check back then! And I’ll be doing plenty on Order Books in general as it’s going to be a big deal.
P.S
I’ve had a professional designer come up with a fresh new look for the site, preview below. I can’t wait to implement it as I think it looks a lot better!
I’ll be making these changes over the next week without closing the site for maintenance, so if you see any graphical changes/oddities this is why. Please bear with!
