Betfair Premium Charge

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One of the biggest problems successful traders face is the Betfair Premium Charge. If all you do is trade, as soon as you start winning decent money the charge kicks in and takes away a chunk of your profits.

I am a very novice trader, my winnings from trading are only a few quid, but I have made a reasonable attempt to understand the premium charge. The thing is devilishly complicated and widely misunderstood as a result. In its present form it is also impossible for you to calculate exactly what you will pay.

One of the ways you can reduced the impact of the premium charge on your trading is by matched betting or arbing, as this will result in some losses at Betfair which win at the bookie. If you haven’t already done the free bets there is plenty of money to be made from them and the winners will offset some of your winnings at Betfair. There is plenty of information in the Help and Guides section if you need guidance on getting started, and you can pop into the live chat for more personal help.

You may find it useful to open a separate Betfair account for matched betting and arbing, as once you have a lay on something you can’t then easily trade that selection. I was playing with trading horses, but I also arbed horses and found it very awkward with one account. Betfair do not mind separate accounts, but take both together for calculation of charges.

If you are worried about how close you are to the premium charge you can visit (you need to be logged into Betfair to use this link) which will tell you if you are close. I am not certain that this link still works but I have left it here in case it does. If it simply says you have not incurred any charges, that means you are not close to paying. You can request a spreadsheet from [email protected].

An Explanation of the Premium Charge

I will attempt to explain exactly how the premium charge works here. If you have any questions please feel free to ask me in the live chat or by PM and I will try to answer them or get an answer from Betfair.

Betfair’s explanation of the premium charges can be found on this page:

section 6, at the bottom.

Why do Betfair have Premium Charges?

(This is not a comment on whether I think the Premium Charge is fair, just an attempt to explain the reasoning behind it.)

Betfair reckon that to operate to their required profit level they need to charge 2-5% commission rate per matched bet. For most punters this will equate to a commission rate of over 20% gross profits, if they have any profits at all. Like any other business, though, Betfair will always be looking for ways to cut losses, and they have identified various types of “losing” accounts which pay considerably less than the 20% commission on profits. These may be people with inside information, professional gamblers whose bets usually win, or traders.

Traders are affected because commission is calculated on your overall P&L on the market, not on each individual bet. If 2 punters place bets, one a back and one a lay on the same horse, one of them will win and one will lose. Betfair get the commission on the whole of the winner’s profit on that bet (assuming he only bets on one horse in the race). But whenever a bet is matched by a trader, he will have lost most of the winning stake on his other bet on the same horse. This means that the commission paid on that bet is only paid on the trader’s overall profit on the trade. This is significantly less than Betfair would have got had the trader been a straight punter. You could argue that, had the trader not been trading, the 2 bets he took might not have got matched at all, but this is not the way Betfair choose to see it.

How to Calculate your Premium Charge

To do this you need several bits of information some of which can only be found in your spreadsheet from Betfair. Here you will find your total gross profit and total charges for the lifetime of your account, along with the maximum possible premium charge (max PC), at the bottom of the left hand column. If this is zero you will not have to pay premium charges regardless of what your weekly position is. The spreadsheet will also tell you how much of your £1000 allowance you have left at the bottom of the right hand column.

Next you need to work out your position for the week, Monday to Sunday. There is unfortunately no easy way to collect the required information at the moment – Betfair said they would make it available, but they have not done so. The best you can do is to add up the total commission you have paid on winning bets, the total amount of losses on various markets (not individual losing bets) and the total P&L on the account between Monday morning and Sunday night. This is exceptionally tedious.

Having got this information, as far as I can tell the calculation itself is not that hard:

1. Calculate commission generated = (commission paid + 3% of total losses)/2

As I understand it, now that Betfair have removed the data and transaction charges from the calculation, the total charges are equal to the commission generated for the weekly calculation.

2. Calculate 20% of your week’s gross profits.

3. Subtract the total in 1. from the total in 2. This gives you the amount of premium charge you will pay this week assuming you have already used all of your £1000 allowance, unless this is more than the max PC figure from spreadsheet (see above), in which case, that lower figure is what you will pay.

Higher Rate charges

The following appeared on the Betfair forum and is reproduced in full here.

– – –

Changes to the Premium Charge

Betfair Customer Services 28 Jun 11 13:28

From 18th July 2011 Betfair will be making some changes to the Premium Charge. The current Premium Charge mechanism will remain in place but higher rates may now apply to a small number of customers (less than 0.1% of annual active customers).

Full details of the changes can now be found on the Betfair Charges page under the About Us section of the website. However, the changes can be summarised as follows:

• Customers will only be subject to Premium Charges at higher rates if they satisfy all of the following conditions:

o Lifetime net profits* exceed £250,000

o Lifetime commission generated less than 40% of lifetime gross profits

o Bet in more than 1,000 markets

• Customers that satisfy all of the above conditions will be asked to pay Premium Charges at rates between 40% and 60% on all future exchange activity.

All customers that will be affected by these changes have already been contacted.

For more information, please visit our FAQ section here

We hope the information provided will outline why we are making these changes and how they will be implemented in practice.

If you have any further questions, please send them to [email protected].

*by net profits we mean the amounts won less the amounts lost, on all exchange markets, less all commission paid and Premium Charges debited.

Premium Charge FAQ

How will I know if I’m affected?

All customers that satisfy the criteria to incur Premium Charges at higher rates have already been emailed directly by Betfair. Customers who are subject to incur Premium Charges at higher rates in the future will also be notified directly by Betfair in advance of any higher charges being paid.

Why are you making these changes?

The Premium Charge was introduced in September 2008 to ensure that our most consistently successful customers are charged at least what it costs Betfair to provide the service that they ultimately benefit from.

At 20%, the Premium Charge ensures that we are not subsidising the profits derived by consistently profitable customers. However, breaking-even does not allow us to invest in the Exchange to the extent that we need to, in order to keep upgrading our platform and products, for all of our customers. Betfair is now requiring a small number of our most successful customers to pay a fair price for the service provided.

Why not just adjust commission rates so that everyone pays more?

Commission rates are reviewed periodically and have been amended twice in the last six years to reflect what we believe to be a fair and competitive price for the service provided to the vast majority of customers. However, increasing commission rates alone would negatively affect the vast majority of customers for whom the existing commission structure sets prices at a fair level. The higher rates we are announcing today mean we can fairly price the service we provide to consistently successful customers.

Why aren’t you increasing the Premium Charge rate that everyone is asked to pay?

The introduction of the Premium Charge was designed to ensure that all consistently successful customers generate in charges at least what has been spent by Betfair to provide the service. However, there is still a very small group of our most consistently successful customers who are not contributing enough towards the maintenance and long-term growth of the betting exchange. The changes to the Premium Charge are designed to ensure that they do so. The current rate of Premium Charge continues to guarantee a fair contribution from the majority of those customers who pay it, and those customers will not be affected by this change.

How will the changes be implemented in practice?

For the purposes of introducing a change to the Premium Charge rate that applies to your betting, we will assume that you have always incurred the Premium Charge at the prevailing rate. For example, if the Premium Charge rate applicable to your betting is now set at 40%, we will assume that you have always paid Premium Charges at 40%. This will ensure that you are considered to have generated total charges equal to at least 40% of lifetime gross profits at the point that the new rate becomes effective.

If you have any further questions, please send them to [email protected].

– – –

Avoiding Premium Charges

In my opinion it is highly unlikely that anyone simply doing matched betting or arbing will ever incur premium charges. Traders will do so and if they are very successful they run the risk of being in the higher bracket. Prevention is very much better than cure as far as premium charges are concerned. It is much easier to build up an “immunity” by doing matched betting or arbing before you get anywhere near the PC threshold than it is to try to offset charges by doing the same, because if your bets win at Betfair and you are already liable for charges it will not help you much. Unfortunately the bookies are getting much sharper at limiting accounts, so although this is still useful, you may not be able to build up a sufficient cushion before you run out of accounts.

Moving to another exchange is the logical course of action but this is not as easy as it sounds. Traders need markets that move and match their money, and currently the opposition is not good if you want to get matched rather than take prices.

The premium charge is calculated basically on 2 factors – how much your net profit is over the lifetime of the account (and during the week concerned) and how much commission you have paid. It is the 2nd of these figures which gets traders into trouble and which also helps to keep arbers out of it. The key is in the fact that Betfair also counts “implied commission” in the commission figures when calculating the PC – implied commission occurs when your bet loses, and is 3% of the total losses. This means that if you have a lot of losing bets, as well as decreasing your overall profits, they also keep your commission figures up.

In my opinion, if you find yourself developing a winning trading strategy which is likely to lead to premium charges, the best thing you can do is take action, first by matched betting and arbing (because these are profitable in themselves) and then by cross market or cross exchange trading. By this I mean backing something like 0-0 and laying no goalscorer, or backing and laying the same thing at Betfair and a different exchange. There will be a loss associated with this due to commission on both bets and having to take a tick loss anyway between back and lay, but I can’t believe this will be more than the premium charge, particularly if you can find an exchange with a low commission rate. I would tend to favour cross exchange trading over cross market trading at Betfair as I imagine they will be able to spot that and may take action if they think you are deliberately avoiding the PC.

(Note – I have never paid Premium Charges myself, and the above is based on information from my own spreadsheet and from the Betfair charges page. I am quite happy to be corrected by someone with real experience of the charge if I have made a wrong assumption somewhere!)

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