Updated: Jun 26, 2020
The latest tool on the market has been launched - but what does it mean for traders? How significant is the matching engine?
Firstly, it's important to understand what the matching engine essentially offers. It is a new way to BUY players. A trader can now make an offer, or 'bid', for a price that is BELOW the buy price. This is the fundamental concept that is being introduced.
So, you don't have to necessarily pay the standard market price for your next investment, instead, you can make an open bid.
Let's use Bruno Fernandes as an example here:
Buy price is £9.70 at time of writing.
You want 100 shares, but at £9.50 per share.
You can submit that bid into the index. This will require you to pay for said bid in advance. When a trader INSTANT SELLS, the shares are distributed to the highest bidder. The Instant Sell Price will be made up of the average of 300 of the highest bid prices - I go into this a little further below.
Let's say that somebody has 100 shares and instant sells. If your bid was the highest bidder, it is a match. You will then pay the bid price (£9.50) per share and receive all 100 shares.
If somebody has 50 shares and instant sells, this is a partial match. You'll receive the 50 shares at the bid price (£9.50). The remaining 50 shares you were looking for will still be an open bid in the bids tab - so you will still be in the running to receive them should another trader offload 50 shares and you are still the highest bidder.
If you are not the highest bidder, you will not receive any of the shares. But you will still have an open bid. This basically means you will leave the bid open until nobody has bid any higher than you and a trader instant sells, then you'll be the first in line.
You can cancel a bid, basically retracting your offer, should you no longer wish to buy the player at the price you offered. You must 'accept price movement' so that if the players price is reduced, your bid remains open. You'll never pay more than you'd originally bid, but it could mean you pay less (or so says Football Index).
In terms of selling, we will still be able to instant sell (provided there has been a bid) and we will still be able to set reserves. Not a lot has changed in terms of selling a player. However, the instant sell will now be far more 'market-based'.
As a result of the introduction of the matching engine, we can expect the following:
1. Market-based Sell Price
Football Index 'Instant Sell' has dramatically changed throughout 2020. It used to be relatively easy to observe the spreads of players, and we could cash out bets using instant sell for very respectable profits. As a precaution to ensure the market didn't crash during the onset of the pandemic, FI locked in plenty of traders cash through drastically reducing the instant sell prices to an extent that most traders couldn't cash out without a loss. It forced people into a sell queue rather than instant cash-outs and ultimately made traders hold on to their portfolios rather than dipping out. It was a move that could have left some bitter, but ultimately prevented a complete crash. The old instant sell price was based on the number of shares being listed in the sell queue.
Now, the Instant sell price will be based upon the average of 300 shares that come from the highest bids. This selling mechanism will still allow a reserve price to be set if you wish to add to the sell queue, but the instant sell price will be set as a result of the highest open bids.
Crucially, if there has been no bid for a player, then there is no instant sell available. We will see how often this occurs after this weekend - we imagine the vast majority of known players will have some form of bid made for them, even if it is a lowball.
The Matching Engine will set the Instant Sell Price as the 'average of 300 shares that come from the highest bids'.
This means a couple of things.
A player in high demand will likely have a high instant sell price, as the highest 300 bids will likely not be far from the Market Buy price. This is a tight spread.
Example: A player in high demand at £5 buy price may have an instant sell price of £4.95 if the average of 300 shares from the highest bids is £4.95.
If a player is in very low demand, with low-balling bidders, the average price of the highest 300 shares' bid price is likely to be far lower than the market buy price. So the instant sell is far lower than buy price. This is a wide spread.
Example: a player that is in low demand or popularity at £2 market buy price may have an instant sell of £1.20 if the average of the highest 300 shares bid price is £1.20. In other words, if a player is in low demand, traders will low-ball bid. The instant sell will consequently be lower as it is based on the average of 300 shares that come from the highest bidders.
Finally, if a player is not in demand at all and has had no bid made for him, there will not be an instant sell price available.
2. Greater Liquidity in a roundabout way.
Of course, sell queues still exist with the introduction of the Matching Engine so money is still 'tied up'. In fact, it's almost as though there are two queues now - one for the standard 'sell with reserve price' and one 'buy queue via bidding'. You could argue there is in fact less liquidity for this reason. However, for someone to place a bid the money must already be in cash in a bidders account. Therefore we can assume that those traders 'bidding' have free cash in the index. We're assuming plenty of traders will keep cash in their reserves going forward in order to make bids, rather than the deposit-spend trend that has been commonly adopted. When a bid is made, the money is sent to the index, however, if it is cancelled then the funds return to the bidders account. In short, more cash will be floating around in the index, hence greater liquidity.
3. Fluid Player Valuation = Cheaper Buy Price
Buying a player between the market value and the instant sell price (AKA buying within the spread) is something that many traders have long desired. It means a trader can set what they consider a player's value rather than having to buy for the market price. The selling price of shares will never be lower than the instant sell, as those in the bidding process must be the highest bidder (which is an average of the highest bids). A trader can sell at a price greater than the instant sell, but then of course they must join the traditional sell queue just as before. So selling isn't all that different, but the instant sell value is effected as stated above. However - the BUY price is now completely fluid. The market buy price will still be available, but a trader can bid as low as they like for shares. If they are the highest bidder when a trader instant sells, they get the shares at the bid price. This could mean plenty of traders are able to buy shares at a discounted price! Sounds great right?
This is a game changer for buying players at a price lower than market value.
This is the return of a predictable spread - a tighter difference between buy price and instant sell price indicates a player in demand.
An instant sell significantly below market buy price is a wide spread - so low demand.
There will be no instant sell price if nobody has made a bid on a player. Period. If you want to sell a player that has no instant sell, it means going through the sell queue. The problem? Any trader that can see there's no instant sell on a player which they are interested in would simply submit a bid rather than buying at the market price. So the sell queue becomes almost futile. Basically if there's no instant sell available, add to sell queue but be prepared to instant sell if it becomes available - your player is clearly in low demand.
Finally - Football Index is taking 0% commission for all bids placed until 31st July. That's 10 weeks to simply toy around with bidding and get to grips with the Matching Engine without losing out on commission.
Hopefully this article has cleared up a few things for traders that have not managed to get their head around this exciting new addition to the Football Index.
Finally, this is a learning curve for us all. If there's anything odd looking in this article, there's a slim, albeit possible, chance that we haven't quite got it right. We're pretty confident we know the ins and outs of this exciting new tool, but nobody is perfect!