Welcome to this week’s State of the Market. A day later than usual because this one took me longer than expected to write.
It’s not a particularly long one – just getting my thoughts down on this one took time!
I’ve ended up splitting this into two articles, the second will be released tomorrow.
Today I’m going to focus on the market and specifically the upwards and downwards pressures on prices. I’ve been thinking about exactly why prices are stuck so low.
Whilst there are a few reasons – one that is slipping under the radar is that the way FI are presenting information to us is a liquidity killer.
I then go on to think about what I’d do if I was the FI CEO. I won’t have all the information Mike Bohan has. But I can offer thoughts as a long time trader particularly in regards to the Match Day Experience and the incentives dividends are providing us.
I’ve identified 3 things that I would change and believe they would solve a lot of issues FI face, particularly on the Match Day Experience. Including a seemingly radical solution involving actually scrapping Match Day Extra and Team of the Month (bear with me!) in favour of something else.
Tomorrow, I’ll talk about trading strategy and specifically focus on some practical trading example scenarios of when to buy more, hold or sell the problem players I am sure we are all wrestling with, Chilwell being a recent example. A bit like the popular “Selection Headaches” article I wrote a few months back.
Pricing Pressures
A difficult week on the market.
Premium player prices continue to get squeezed down – which is as expected and was even covered here a few days before it began.
It’s perfectly natural to see premium prices surge as the market started recovering in January. They are always likely to be the first targets people go to.
And then, money will tend to trickle out of them as people seek value further down the price ranges. That wasn’t a negative sign really – actually a healthy one.
But that rebound has faltered.
These premium players tend to govern sentiment, and because any money leaving those and being put back in is probably going via cheap bids, it makes the market look like it is struggling again.
All that was probably really happening is that expected natural redistribution from the premiums to the mid to low price points.
But with people nervous after the last year, it’s very easy for that to turn into an “Oh no it’s happening again” narrative as they see premiums drop. And that negative sentiment feeds further negative actions and the drop becomes self fulfilling.
I’ve said this a few times now but the way information is presented needs to change. Traders are just reacting to the obvious that is in front of them.
We have market pressures that look a little like this:
All the downwards pressure from selling pushes Blue Button prices down. And with most people owning plenty of top 50 and top 100 players, just one medium sized trader choosing to sell one of them can very swiftly knock that price down.
It is very likely that at least one person holding top 50 or 100 players, and that is most of us, is currently desperate to sell – and will likely do so for less than the player is really worth.
That may be because of a need to free up cash for a life purchase, a lack of knowledge, or because they have had enough of FI in general and want out – rationality of price/yield be damned.
This isn’t bad per se. All markets have a battle between the optimists and the pessimists.
The problem is the way the market presents information doesn’t make this a fair fight when it comes to winning the battle for “sentiment”.
The top 50, particularly the premiums, is where a lot of people get their cue on how well the market is doing from. If Sancho or Bruno are dropping then people will panic. And it is very likely that anyone feeling pessimistic is holding at least a few such players, as they are popular. This gives a very strong downward pressure on that Blue Button price.
For those optimists who are buying – they are not neccessarily choosing from a top 50 or even 100. They are currently spoilt for choice and there is genuine clear and strong value in perhaps 250-500 players. The better traders will be boiling that down to something like a top 50 of extremely good value players, often in the 50p to £2 price range.
But due to people having different tastes, and having different levels of ability when it comes to judging quality, the optimists buying on bids are spreading cash amongst a wide pool of players. There is currently too much competition for limited money – which is one reason why IPD was removed to narrow that pool of viable selections.
Not many are falling over themselves to buy rising players who win on match days, with a few exceptions like Mbappé last night who had to work really hard to earn a rise. And there are still some really lucrative big percentage rises available when a cheap player surprises others with a win, like Kovacic.
But in general it’s a tough environment. There are a few reasons for this.
Firstly, lots of good traders will be holding good players already, and just want to hold and wait for them to win. These players will likely be significantly undervalued so there is little need to change horses just because a different player won this week.
Our player could win next week so why sell them too cheap? This causes stagnation.
And, if a player wins this week, traders have no reason to Fear Missing Out. They simply have too many good value ways to spend their cash to worry about missing one player.
I probably have a watchlist of 30-50 players where I could happily use my cash. Why chase the one who just won after a rise when I can buy one who is performing well in his underlying match numbers but is being sold cheaply by a bad analyst or general pessimist?
And those who used to chase around big scores on Match Days have been taught not to by 3-6 months of too many people engaging in “sell into the win” behaviour on pretty much every player, a bad habit that over mighty IPD got started. But the behaviour has lingered. Obviously we all use this tactic at times but when it becomes the only rational choice the market breaks down.
To simplify.
Those who want to sell are probably trying to sell a lot of the same players. They are having to compete with each other to sell the same player, and just one of them can move the price. This pushes Blue Button prices down very strongly.
Those who are buying have a lot of choice of which players to buy and can exploit desperate sellers. There is almost zero reason to click the Blue Button in the majority of cases, only when the spread is very tight. This means the Blue Button price is rarely going up. Most Blue Button price moves are probably a result of existing holders deciding not to sell.
Because sentiment is almost entirely based on the movement of that stuck Blue Button price… it is extremely difficult for positive sentiment to take hold for long, even when traders are feeling good and spending money.
How do you solve these problems?
If I were FI CEO, what would I do?
Mike Bohan hasn’t been FI CEO long.
His major public announcement thus far has been the removal of IPD and it’s replacement with Match Day Extra. Solid moves, overall.
But there is lots still to do. Mike will have a lot on his plate right now. I’m offering some thoughts here as a long time trader on what could be done to get the market firing for a sustainable period of time which we all want to see.
The Match Day Experience
Match Day has to be fun. FI does make watching football more fun. Always has. But we’re missing something at the moment – trading can feel quite exhausting and unrewarding because traders aren’t always reacting to good performances like they used to.
As much as it is a long term product, we need dividend rewards that encourage trading and Make Match Days Fun Again (MMDFA hats are available).
Removal of IPD was a big positive step here. Some argue that they miss this from the Match Day Experience. But it was 100% required to push liquidity into a smaller number of players.
If we want a liquid market where traders can realistically provide liquidity we have to reduce the pool of viable choices to the real stars of European football.
There just is not enough money in this market to provide liquidity for more than 500-750 players and it’s important to acknowledge that. Maybe one day there will be, but not now.
So I was really pleased Bohan grasped the nettle here and took a tough but necessary decision.
The replacement with MDE was a good step too in principle, and I welcomed the concept. I had reservations though with the payout structure and I think the weakness I highlighted is now becoming clear.
Now we’ve seen MDE in action, I don’t think many care much about winning it to be blunt. It is not obviously driving trading. It is not really improving the Match Day Experience.
It’s nice to win a 1p dividend of course, but winning MDE does not make up for the disappointment of having a player come in second after a very strong performance.
And because your 1p can drop into your balance 1 to 6 days from the time of the match… it’s not giving people an exciting instant win either.
To be clear this is not about FI’s generosity – the overall context is that FI are already extremely generous with Match Day and Media Dividends as it is.
My concern is that FI are spending this money on MDE but aren’t really seeing a benefit in terms of increased trading or customer satisfaction. They need to make sure that when they are making payouts they are getting something for their money.
I have two possible solutions, one is a tweak. Another is more radical but potentially better.
Here is the tweak that would make MDE a more meaningful payout that traders would be pleased to win – scrap 6 places at 1p and instead have 2 places at 3p each. A cost neutral change for FI that makes winning more meaningful.
This really needs to be combined with a live MDE leaderboard to ensure that there is that sense of match day excitement. If traders can’t actually see the action unfolding live on their app – then as far as trading is concerned it may as well not be happening. Out of sight, out of mind.
This would:
– increase the match day excitement as you can see the scores moving in real time,
– lessen disappointment when a player gets a really big score yet comes 2nd,
– make people care more about winning MDE to encourage trading in quality players, which will also be another small factor that would help concentrate liquidity.
Some may say that it is good that any player can feasibly win 1p… but in reality I don’t think any players are really going to survive based on the hope of winning a penny per share.
People might hope that it brings a wider pool of players into the game (which is actually bad for the market as discussed). But in reality, a 1p incentive won’t do that anyway.
The above tweak would improve things, but I think we could do better. By stepping back and re-evaluating the prize pool as a whole, we’re able to make sure that dividends are driving trading and rewarding the right sort of behaviour.
I’m bringing Team of the Month into play here.
TOTM is actually quite enjoyable but suffers from two main problems:
– The payouts outside of the top player in each position are quite underwhelming. TOTM was left behind in the last dividend increase and Match Day dividends now make the Monthly ones look tiny.
– TOTM does not give instant rewards that generate excitement on match days. Maybe towards the end of the month once the places are being finalised it does – but you can’t even see a leaderboard for it in real time. So can traders really get excited about this and trade around it? Not really.
I would propose removing both Team of the Month and MDE.
In it’s place would be a simple tiered payout on Match Days, perhaps awarding:
Gold Day – 1st (14p), 2nd (7p), 3rd (3p)
Silver Day – 1st (8p), 2nd (4p)
Bronze Day – 1st place (4p) same as now, with no tiered 2nd place winner.
You’d have to actually be FI to do the full math. But I’d be aiming for pretty much cost neutral overall with these changes. We do not need more dividends, we need to use the ones we have better.
This does three main things:
– Simplifies the experience – There will only be one way to win performance dividends. We can ditch all of the complex explanations of the different types of performance dividends which can turn off new users.
– On a Match Day, you’ll get meaningful wins for coming in 2nd or 3rd. No more howls of anguish when a random spoiler player beats Sancho. Star Man and the 1st place should get the real jackpot. But 2nd or even 3rd should still be satisfying and leave us feeling like the good performance counted.
– Rewards will come near to the event, which is always more exciting than the promise of a dividend up to 6 days or a month from now.
This still rewards holding good players long term. You don’t actually need a weekly or monthly format to do that. Players who can come 1st on Match Days now are the most likely to find themselves in 2nd or 3rd too.
Therefore, whilst this change appears fairly radical, it isn’t. This change won’t really upset any types of trader in particular. There would be no bonfire of the “Team of the Month” or “Match Day Extra” players if these dividends were replaced – it’s all the same players who are likely to get a boost from a tiered payout structure.
If FI can workout a reasonably satisfying payout structure that is pretty much cost neutral to now, this feels like it would be a slam dunk win to me. Not just for existing traders, but the marketing department will be grateful for having a simpler product to explain to new customers too.
Increased Liquidity
This topic has been done to death but clearly we need Market Makers. But not just any Market Maker.
I have observed the current one “LP0001” doing extremely questionable things that hurt the market rather than help. And all whilst costing FI money.
Market Makers should not be pumping cash in to artificially inflate Blue Button prices to make the prices look nice for a day and create the illusion of confidence. Particularly when they are doing it in players that are already overpriced.
This is utterly self defeating as traders just pocket the profit from that stupid move and exploit the Market Maker. I am stunned this happened honestly because it shows massive naivety that has to be learned from.
We need a Market Maker that is competent to support the prices that deserve to be supported. Using bids smartly to ensure that players with genuine underlying value are stable and tradable. A Market Maker should very rarely be buying on the Blue Button at sticker price.
This will make traders less twitchy and bring confidence to hold good players even if they hit a bit of bad news or have a bad game or two. And crucially, give people confidence to take some risks and buy players when they look strong on Match Day.
Prices that do not deserve to be supported because of a lack of underlying value should be left to drop and should not get Market Maker support. This is a lost bet.
The User Interface Kills Positive Sentiment
The way the user interface is set up amplifies the Blue Button drops at the premium end and actually hides the rises on the Red Button as people make bids.
How do people judge sentiment? They wake up, look on the app, and the prices are presented sorted by pennies in Blue Button Price rises. And because that is what is right in front of traders, that is how they judge how the market is doing.
Yep, remember that Blue Button with pressures that ensure it is very likely to go down most of the time even when people are spending money on bids?
That is front and centre in FI’s current shop window.
And it should be. We need that information. But why, by the beard of Zeus, do we not also see the upward pressure from bids front and centre?
If money is leaving Bruno or Neymar because the premium end rose as people take profits and naturally place bids in better value players further down, why can I not see this happen easily?
Why can I not sort by spread percentage and see what spreads have closed due to people putting bids in?
Why do FI make the Blue Button penny rise the default at all? Why doesn’t it show 2-3 different metrics that give the full picture?
Why does the price chart not even show the spread almost a year after the Matching Engine was implemented?
The major problem that FI has is confidence. It’s certainly not value. The dividends are exceptionally generous. And there is no shortage of traders who would absolutely love to go for it if they felt more confident.
The user interface may seem like second fiddle to Market Makers. But it’s not. It is possibly more important because it is crucial to sentiment.
We really need the FI shop window to very obviously give us the full picture of what is going on, so that traders can kick this habit of using the penny price rise or fall as the ultimate measure of how things are going.
Market Makers might cover up some cracks but in an Order Book system you need traders to carry the can. And I believe they could in a pool of 500-750 players, with relatively modest Market Maker support.
If a competent market maker was doing his job correctly, we would barely notice. They would be supporting good players, ensuring players with intrinsic value are not overly vulnerable to panic selling. This will provide a base of confidence for traders to trade from.
FI should think carefully about what traders see by default when they login because this matters a great deal.
It should be fair and representative of what is happening on both the buy and sell side. As well as giving more details on the overall performance of the market.
Final Thought
The above isn’t a massive shopping list. They are all quite acheivable measures that by FI social media standards at least should be fairly uncontroversial.
There is time to get this right, and huge potential for prices to rebound towards more rational values. And we’ve seen good changes from the new CEO so far in a short space of time.
But it feels like until all these issues are addressed together, you don’t get the momentum you need for long.
The way the market is constructed in terms of the mechanics and the information provided makes it very hard for the optimisitic traders to win, and very easy for negativity to take hold.
What I’d like to see, even if it takes a little bit more time, is a genuine package of measures like the above that all drop at the same time and are implemented at the time of the announcement, or very soon after.
Trust won’t be restored overnight, or just in one announcement.
This situation will change when traders go through a few weeks of Match Days and see the winners get rewarded, without crashing back down again the next day.
Maybe Market Makers, when first introduced, need to be especially active here in the first few weeks – if only to change the bad habits and negative expectations that traders have left over from the wild IPD trading days.
With just a few weeks of fun and satisfying match days that make sense, I’d have little doubt traders would respond and play a big part in improving liquidity.
But we have an understandably exhausted and frazzled trader base right now who are need of some reassuring next moves from the powers that be.