Spreads – 26th June 2019 

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Below, read an important update surrounding spreads on Football Index.

Lots of discussion and debate has surrounded something many feel is an innocuous and a wholly reasonable reflection of the market maker appetite for risk when buying shares back. For others the spreads on different players creates frustration and disillusionment.

With much back and forth and engagement on the incurably short platform that is Twitter, I’ve put pen to paper here in long form. In an effort to help shed some light on where we’ve come from, where we’re going, and why on earth some footballers have a spread of X and others have a spread of Y.

Let’s do this…

We can’t truly understand the present without a good look at the past, so bear with me while we rewind to 2016.

Football Index had been running for only a matter of months and even at that early stage it was painfully obvious to the management team that liquidity was the biggest risk to the future success of the platform. There was only one price next to each footballer name, the buy price. To sell you had to go, via your portfolio page, into what we now know as the “sell queue”.

Selling to market, in theory, is a wonderful idea. Indeed around 50% of all sales today go through this queue. However, the lack of visibility for the seller on where they are in the queue, how many other shares are ahead of them, and when the last buyer made a purchase on any given player, are undeniably a problem.

Many may argue that today these foibles of the platform are nothing more than a minor inconvenience given the current and ever-growing volume of demand. It’s not an unreasonable assumption for experienced traders selling to market to expect a consistently better sell price. However, it does require a little patience. One may expect to wait an hour, a day, or even a week to sell. But they will sell. In short, liquidity is not a problem now, but that wasn’t always the case…

In 2016 queues were slow. I mean VERY slow. It’s no surprise that when everyone wants to exit a position the demand to sell hugely outstrips the demand to buy. For those who’ve known the Index as long as myself, you will remember the Alex Teixeira transfer saga.

A brief history on this for those who don’t recall it: The highly-rated Brazilian midfielder was valued by his club at the time, Shakhtar Donetsk, at €50m in the January 2016 transfer window. Liverpool reportedly made several bids up to around €30m that were all rejected.

On Football Index traders had lumped in hard on a player who they thought was going to be lighting up the Premier League as one of Klopp’s first big-money signings since becoming Liverpool manager. Sure, Klopp has a track record of turning potential into quality but the reaction of newbie traders (they were all ‘new’ at the time to be fair) was a colossal overestimate. It was a gamble and one that failed miserably.

Teixeira eventually moved to China for the €50m Shakhtar wanted and suddenly we had our first real race to sell on the Index.

Low and behold, no one wanted to buy a player who had dedicated his immediate future to the doldrums of the Chinese Super League. It seemingly didn’t matter what price he dropped to. There were no buyers.

We knew this was an unsatisfactory situation for everyone concerned. You could make the argument that we should have bought it all back, licked our media dividend wounds and moved on. In many ways that was the start of what we knew had to be addressed.

In truth that early experience probably cost us hundreds of thousands in cash from opportunity cost alone, not to mention the thousands of early adopters we’d managed to upset in the process.

If people couldn’t ‘get out’ of a position, even for pennies in the pound with relative ease, it was obvious they wouldn’t come back for more. We had to change and we knew it. We introduced the published sell price a month or so later.

It was one of the best things we ever did.

There are moments that truly ‘made’ Football Index. Those massive changes are for discussion on another day, but in the pantheon of crucial decisions that turned FI from ‘just a good idea’ into multimillion pound trading platform, offering ‘instant sell’ ranks pretty high.

So Instant Sell was born. Instant cash out whenever you wanted. Subject to a few health warnings; we never guaranteed a cash out price, we never said it would be available 100% of the time, and we never said it would be the best option for making a profit.

Many traders will note that occasionally ‘instant sell is unavailable’. Our internal market maker, or ‘Risk Team’ as we know them at FIHQ, will occasionally suspend instant sell at times. Why is this? Really it’s to manually check a volume of transactions to ensure there is not an individual or colluded pump or dump of share prices. It’s to manage risk. That is our risk as the market maker, the buyer who gets left holding the baby when everyone else has moved on to pastures new. Hence ‘Risk’ is the name of the team.

Risk is the one and only factor when it comes to the spread. From a market commercial perspective, we’d obviously prefer the most liquid situation possible. Think perhaps a tenth of a percentage spread: good for Football Index, good for traders. Don’t forget we gain a percentage commission on the sell price. The higher the price, the better the commission. That’s all fine and dandy until you unravel the other issues.

Let’s think about why Football Index offer that cash out price on Instant Sell. It is to keep the market liquid. There’s no use to us or our traders in holding up funds which would be deployed in another footballer. Do we want to perform this function and be the arbiter of price? No. Would we prefer someone else offered what they thought the shares were worth and so determine a natural spread? Absolutely.

In fact, the very reason we’re having this discussion is because traders do not want Football Index to determine the sell price of a footballer. We get that. We don’t want it either. Instant Sell is merely a service offered to traders at this point in time of the platform’s evolution.

It’s a matter of public record that Adam Cole has repeatedly committed to order books. The Index actually runs pretty fluidly now and many see Instant Sell as a wonderful thing. It provides an instant, and in many cases generous, cash out mechanism where the majority of other markets would not.

We also feel we have a duty to protect the portfolios of customers who may not be online constantly. There are situations where people have, frankly, irrationally started a sell off of players only for 24 hours later to realise things aren’t all that bad, and their initial reason for purchasing was still valid despite a poor performance or a red card. In these instances a wider spread in an individual player has proven to stem the flow of wider market falls. It’s been a force for good. Making people think twice about panic selling and depressing not only the price of one player, but perhaps many.

The one word that comes up constantly in my dialogue with traders is “consistency”. There is an erroneous narrative that has been promoted by a minority suggesting large spreads are in our interests. As though the worse we make them, the better off we are. This is simply untrue. Untrue because we would in fact earn more commission on a tighter spread. Untrue because we want customers to have a great experience. And untrue because we know categorically that customers are more likely to re-buy from a profitable position than a losing one.

I’ve pointed out on numerous occasions that there are no two footballers, at the same age, club, position, potential, risk or overall situation. Every player has differing sell queues, trading history, recency and frequency of trades. We evaluate this, along with Opta, media and other third party data to protect our market making function. That is to offer the best possible price on any player at any time. If we get it wrong on one player, again and again, we’d see a less competitive spread on all players.

Market making is not a space we wish to own. I cannot be more clear about this. It’s not something we want to do, because it creates discussions around “why” and “but this footballer is X and that one is Y”. The best way to solve this is to allow people to occupy that space within the spread as they see fit. That is the primary reason we’re introducing order books.

As mentioned earlier; 50% of trades are currently completed through the sell queue and when we introduce order books we can expect this to exponentially increase given the flexibility provided to traders. Will we have to provide a market-making function? It’s absolutely likely, and possibly vital that we do, in the short to medium term at least. We will provide this function as long as the market needs it. That is in everyone’s interest.

It’s really worth emphasising the point that instant sell is actually a hugely beneficial thing. Sometimes it’s not going to be ideal for you, other times it’s a great option. It’s about 50/50 based on our data.

In some instances, people have complained to me when the spread is ‘wide’ and the player is moving up in price. I would say “that’s great”. If you can sell to market and make extra then brilliant. Our Risk Team is inherently going to be slightly more risk-averse than the market. We have targeted a tighter spread overall every quarter since we introduced it and succeeded in delivering that. I understand the frustration when the spread doesn’t seem organic or logical on a first look, but our Risk Team actually do a great job of providing liquidity to the market and there are a myriad of reasons why the cash out price may not be as good as you would like.

We understand these frustrations, that is why this is a conversation we’re embracing. That is why we’re introducing a system which changes this in the form of order books.

Football Index is a unique platform. It creates incredible levels of engagement and debate. We truly believe this is a safer and more sustainable way of betting and profiting from your football knowledge. Our community is awesome, and ever growing. Instant sell is not the enemy, it’s a buyer when you want to sell, and it’s not the only option. We’ll work to improve this and every other feature with as much enthusiasm and determination as we always do.


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