🎓 Lesson 3: Market Limits

🎯 Objectives

By the end of this lesson, you will:

• Understand what a market limit is
• Understand why it exists
• Learn how bookmakers use market limits to manage risk

🧠 Introduction

In the previous lessons, you:

• Created a simple book
• Applied a vig

But even with a vig, you’re still exposed if someone places an unusually large bet.

🧮 Example: If another punter adds a $50 bet on Tails in your coin toss market,
your total liquidity becomes $250.

If Tails wins, you’ll need to pay out: 1.9 × $150 = $285

That’s a $35 loss, since:

Market Liquidity – Payout = $250 – $285 = -$35

🚨 That’s exactly what you’re trying to avoid as a bookmaker.

There are several ways to manage this risk, but the simplest is through Market Limits.

📏 What Are Market Limits?

                 Bookmakers set a limit on how much a punter can place on a single bet. This is called the market limit. It’s the easiest way to prevent overexposure before it happens. Being “exposed” means there’s a chance you could lose money from your book if the wrong outcome wins. By setting a market limit, you control your maximum risk.

🧮 Example: Applying a Market Limit to your current book

You already have:

• $100 on Heads
• $100 on Tails

Now, another punter wants to place a bet.
You want to guarantee a minimum profit of $6.50 from this market.

Remember:

• Your vig is 5%,
• So your expected profit is $10,
• Accepting $6.50 means you risk $3.50,
• That’s your exposure.

✅ Based on that, you’ll set your market limit for the next bet at $4.

🧐 Let’s see what happens if the punter places $4 on Tails:

If Heads win:

• Payout = 1.9 × $100 = $190
• Liquidity = $204
• Profit = $204 – $190 = $14

If Tails win:

• Payout = 1.9 × $104 = $197.6
• Liquidity = $204
• Profit = $204 – $197.6 = $6.4

🎯 Even if Tails win, your profit drops slightly, but you’re still safe.
Compare this to owing $35 if you left the limit open!

✅ See how market limits protect 🛡️ the bookmaker.

🧮 Real-World Example

If you look closely at the image above 👆, you’ll see that Pinnacle has set a market limit on both outcomes of this market:

• $1500 limit on the Over 5.5 outcome
• $1770.96 limit on the Under 5.5 outcome

🧭 What Market Limits Tell You as a Punter

📈 Higher limits = more liquid markets
📉 Lower limits = less liquid markets

In the examples above, you set a small limit of $4 because:

• Market liquidity was low ($200)
• You wanted to protect your profit

If your market liquidity was $1,000,
Your 5% vig profit = $50,
So you might set a higher limit, maybe ensuring $40 profit minimum.

🔹 Pinnacle sets much higher limits because these markets have greater liquidity, often in the tens of thousands.

So when you see a market with a high limit, it usually means:

• 💧 The market is more liquid
• 👥 Many punters have already placed bets
• 📊 It’s a big or active market

You can use this as a signal of how “healthy” or “active” a market is.

🔁 Recap

• Market limits cap how much a punter can bet on a single market.
• They protect the bookmaker from being overexposed to one outcome.
• The size of the limit reflects market liquidity the higher the limit, the more active the market.
• As a punter, limits help you read how big or healthy a market is.
• As a bookmaker, limits help you manage risk and exposure.

🔮 Next Lesson Preview

                 In the next lesson, you’ll learn about 📈 Line Movement. How and why odds shift over time. Understanding line movement will help you see:

• Where money is flowing
• How bookmakers react to sharp bettors
• How to use these changes to your advantage

⏭️ Next