Life on the Edge

One of life’s inherent understandings is that to get ahead, you need an edge. No matter the purpose, goal or industry, that intangible edge is the key to victory, so much so that many spend more time and energy in pursuit of an edge than they do their desired result.

When it comes to betting, punters fall into this category. Punters will jump onto a tipster’s winning streak in the hope that the “hot streak will continue”. Rarely does that work; if edge was that simple to identify, everyone would be doing it.

In Australia, over two million residents partake regularly in racing and sports betting, and one million follow tipping services. All are searching for an edge to beat the bookies.

“Mathematically speaking, you need to determine the gain and loss of all possible scenarios and multiply them with the respective probabilities assigned to those outcomes.”

The definition of edge, in this case, is positive expectancy. To capture edge isn’t a matter of emotion or intuition, but mathematics. According to Joonas Karppinen, Founder and CEO of online sport and racing tipping platform Edge Alerter, it’s possible to closely estimate whether edge is present in racing or sporting events.

“Mathematically speaking, you need to determine the gain and loss of all possible scenarios and multiply them with the respective probabilities assigned to those outcomes,” he tells The CEO Magazine.

“For example, there are only two possible outcomes – winning and losing – and the probability of either is 50 percent. If the gain from winning is US$15 profit and the loss from losing is US$10, the edge works out to be $2.50, which given a $10 risk, equates to 25 percent of positive expectancy.”

Identifying a Need

A professional derivatives trader, options market maker and former Bet365 senior trader, Karppinen formed Edge Alerter after trying out the concept with a few friends.

“They were smart guys just betting randomly,” he says. “I’d always been pretty good with numbers, so I thought I could easily create a system that helps people follow a simple framework and make a few hundred bucks a week. It was very clear.”

The proof of concept paid off, literally, and soon Edge Alerter was born. But bringing a concept into the world is one thing; helping it walk is another.

“The biggest challenge in those early days was trying to build credibility in an industry full of sharks.”

“The biggest challenge in those early days was trying to build credibility in an industry full of sharks,” he says. “The strategy we used to overcome this was to be transparent, that I developed the system, and that I had a background in professional derivatives trading and as a bookie. Making me the face of the brand helped bring trust and authority to our product.”

Driving Karppinen was a passion to empower Edge Alerter’s users to beat the bookies and bring credibility back to the craft.

“You’ve got a lot of tipping services out there that pretend they’ve got edge, but when you ask them for a track record they don’t provide you one. Many tipsters even work for the bookies on an affiliate arrangement!” he says.

“They make a lot of punters skeptical. But when those punters look at Edge Alerter, see that we have proven long-term results and they see who runs it, they can see the value.”

Success Over Time

The key, Karppinen says, is finding a system that has quantifiable edge over a statistically significant sample size.

“Observing a system’s equity curve, a chart of the value of a portfolio over time, is also a useful way to judge whether a system is likely to be long term profitable and also visually depicts the risks involved,” he says.

“On the profitability side, if there’s one large jump that explains all the returns, you have to question whether there was one lucky trade or bet that got them out of jail. On the risk side, an equity curve shows you the magnitude and frequency of drawdown periods, which are times where the portfolio value is below its peak.”

Edge Alerter, on the other hand, has proven results on a long-term basis. “We’ve become the most profitable tipping service in Australia,” he says. “We’ve got the numbers to prove it, and we can’t find a better one.”

“I understand both trading and betting from both sides. A lot of my friends are professional punters, and I’ve obviously worked in the betting industry, so we can offer our clients a higher level of support.”

Powering the service’s approach is a desire to find fairness in an industry not known for it, and in doing so raise the bar across the sector.

“We’re all about estimating true odds, comparing those to the bookmaker odds, and having a bet when the bookmaker’s odds are significantly higher than our estimate of true odds,” he says.

“Most of the time the bookies have far shorter odds than what the true odds are, but at times their pricing is wrong, which presents an opportunity to us. Then it’s just a matter of chipping away with diligent stake sizing, and, in the long run we come out on top.”

Karppinen’s expertise has also helped to educate Edge Alerter’s user base about both the numerical and psychological components of betting.

“I understand both trading and betting from both sides,” he says. “A lot of my friends are professional punters, and I’ve obviously worked in the betting industry, so we can offer our clients a higher level of support.”

Finding An Edge

At the core of Edge Alerter is that age-old quest for edge, something Karppinen believes sets the platform apart because it isn’t promising users the world. Rather, Edge Alerter is after the same thing as its users, but with the expertise and numbers to find it and to help others do the same.

It comes down to three points. The first is to find quantifiable edge. The second is stake sizing. Although it’s a boring topic, according to Karppinen, it is absolutely critical to success in betting and trading.

“At the end of the day, we’re helping people approach betting like a professional trader.”

“Just because you think a fair value is $4 and the bookie’s gone with $5, it doesn’t mean you go all in on that,” he says. “You need to stake in a really diligent manner. That’s the mistake the great majority make in both investing and betting; going too hard too often.”

The third point is game theory with respect to taking on the bookies. “Unfortunately, the bookies don’t like taking on winning punters and can cause them issues when betting. From our side we think it’s quite rich that the bookies can do those things, but rather than getting bitter, we just need to play the game. Specifically, we have a framework to help our members get profiled as ‘mug punters’, which helps with the long profitability of accounts.”

Karppinen says edge is right there to be taken as long as you’re prepared to educate yourself and perform due diligence. With Edge Alerter, he’s trying to provide that education and help people make smarter bets.

“At the end of the day, we’re helping people approach betting like a professional trader,” he says. “That means helping, training, advising. Professional traders, the really good ones, they get what we’re doing. They know that it comes down to: finding a statistically significant edge, staking size diligently, appreciating game theory, being aware of your cognitive biases and focusing on the long run.”

Going Beyond the Games

Through a series of educational modules, Karppinen has taken Edge Alerter beyond betting and created a service designed to help members make even more money.

“Humans aren’t born traders or punters,” he says. “To be able to take the necessary risks and break down the maths of it, we have to overcome the cognitive biases that work against us.”

“Members say to me all the time that they’ve learned so much, and the value of that knowledge far exceeds any financial value.”

For Karppinen, who says he always wanted to be an entrepreneur, Edge Alerter has been a rewarding experience on multiple levels. “Members say to me all the time that they’ve learned so much, and the value of that knowledge far exceeds any financial value,” he says.

“My view is that the gambling market is a great playground in which to learn key concepts that are applicable to the broader investment world. Whilst our key focus is on the gambling market for now, we are exploring opportunities in other markets too, so stay tuned for that!”