Betting Exchange

The Betting Exchange has transformed the gambling industry over the last 20 years, allowing the punter – to put it simply – back or lay against a certain outcome. It offers the punter more flexibility to hedge their bets in running, potentially cutting losses or guaranteeing profit regardless of outcome. Exchanges will generally show better prices and value than standard bookmakers, as it is other punters who are offering those prices, but Betting Exchanges tend to take a small commission on winning bets as a result.

The first Betting Exchanges were formed around 20 years ago, with Flutter and Betfair joining forces in 2001. The former ceased to exist in 2002, with the latter going on to become the most prominent Betting Exchange in the world, despite several others providing competition in recent years. Betdaq was formed in 2000 by Celtic FC shareholder Dermot Desmond and has since been bought by Ladbrokes (now Ladbrokes Coral) while other exchanges include Matchbook and Smarkets.

As opposed to a traditional betting site, Betting Exchanges work in decimals instead of fractions. Odds tend to differ from 1.01 (1/100) and 1000 (999/1) with punters matching each other’s bets at the opposite odds. So, in theory, if someone has backed a horse at 2.5 for £10, the other player will have laid (backed to lose) for £15. The outcome will be the backer winning £15 as well as his £10 stake, or the layer winning £10 as well as his £15 stake. This is all before commission, which is usually anywhere between 1 and 5% of the winnings.

This is how the site will look like on Betfair. As you can see, many options are available to back or lay, including the match result, draw no bet, over/under goals, correct score, handicap bets and the score at half time.

For bigger matches, the options will include first goalscorer, anytime goalscorer, player to be booked and many other markets. They can prove to be lucrative with traditional bookmakers securing larger margins in these types of selections.

We will use Betfair as the initial example as they are by far the most popular Betting Exchange in 2019, even though they now offer a regular sportsbook as well. The blue side of the bet is always backing the selection, while the red is always laying the selection. On the right-hand side, the bet you have selected will pop up, alongside the current price. You can choose to move the price up or down, but it may not necessarily be matched if another person doesn’t choose to do so.

Then, choose your stake (minimum £2) and click place bets. If you have chosen the odds on offer, the bet will usually be matched immediately unless a sudden change of price has taken place. It will state on the right-hand side whether a bet has been matched or unmatched and how much of your stake has been matched. If you have laid a selection, it will provide you with your liability total – how much you stand to lose if the selection wins.

New Betting Exchanges are popping up all the time, but it can take a while for new sites to have enough users and therefore enough liquidity to have competitive markets and prices. On Betfair, they will tend to have the most amount of money matched on any market, but that information is freely available at the top of every page.

Betdaq are the second biggest exchange, taking around 7% of the market in Betting Exchanges. They offer a lower flat commission of 2% for all customers.

Other alternatives include Matchbook who have a rate of 1.5% for an existing offer in a market. If you post an offer, which another user then matches, the standard commission rate will be 0.75%. However, this commission is also applied to losing selections, something not done on Betdaq or Betfair.

Smarkets, who were formed in 2010, also offer a flat rate of 2%.

Verification checks can be more stringent on Betting Exchanges, as the option to lay selections has led to the possibility of race- or match-fixing. Exchanges often monitor uncharacteristically large bets, especially on events that traditionally have a low sum of money matched. Tennis is a key example, with ITF tournaments often being played in front of very small crowds and for small prize money. However, they are almost always streamed, making them a haven for in-play betting. In larger matches or events, the greater liquidity means this is much less likely and the prices will tend to be more rigid.

A lot of professional gamblers swear by the Betting Exchanges in order to secure profit and just being able to place enough bets at the quantity required to make it profitable long-term. Many successful punters will be restricted to small bets at shorter odds with sportsbooks but on the exchange, that is not an issue as you are betting against another person.

Also, most exchanges have the ability to cash out selections if the market has reacted in your favour, while you can also lay your own selection at shorter odds to gain a guaranteed profit.

The most obvious reason to use the Betting Exchanges are the better prices that are readily available.

Betting Exchanges do have some drawbacks, with the inability to create accumulators one of them, meaning no Saturday afternoon ten-fold on the football! Also, in horse racing, you do not get the ‘Best Odds Guaranteed’ concession so if your horse does markedly drift in the betting, you will not win any extra money if your selection goes on to win the race.

Betting Exchanges do have a slight delay during in-play betting in sports such as football, allowing for pauses in betting when key moments such as a penalty, goal or red card take place. That is also the case in sportsbooks but would not apply to always-in-play sports such as horse racing.

Also, you do have to pay commission on all exchanges, but usually only on winning selections. At Betfair, they offer lower commission to regular users of the exchange, earning Betfair points using implied commission regardless of the outcome.Betfair commission rates Lossing commission

According to Betfair’s website, they say: “Betfair's 2-Step Authentication reduces the chance of having your account compromised. That's because in an addition to your username and password Betfair will ask you to enter a one-time code, which will be sent to your phone via SMS or displayed by the Google Authenticator application for iPhone, Android, Blackberry and Windows Phone, either for every login or only for new devices depending on your settings.

“We have various security measures in place to keep your money safe. Where possible, we process all withdrawals proportionally between the payments methods used, to fund your account. If you have used more than one payment method, say a card and your PayPal account, you must withdraw the equivalent amount deposited back to your card and PayPal account.”

Betfair announced in 2017 that they offered best odds on more than 93% of horse races televised on ITV, a significant amount when you consider these races often have millions of pounds matched on them. That in itself makes the exchange a lucrative tool for recreational punters as well as professional gamblers. This is a football example of the differences between the sportsbook and exchange.

For comparison, the draw is 3.5 in the sportsbook and Barcelona to win is 8.5 whereas the exchange prices are 12 and 4.3 respectively. That means at a £10 stake, betting on the exchanges would return £35 more if Barcelona win and £8 more if the draw lands. Even when taking out commission, that is a significant amount for professional gamblers and even occasional punters.

Usually, bigger priced selections can prove lucrative, especially in horse racing for example. In the win only markets, Betfair exchange users can take advantage of the greater odds as they do not have to factor in each way punters, something that sportsbooks will have to do.

Having converted the sportsbook prices into decimal (top picture), it is clear the advantages of using the exchange. Although the head of the market looks fairly similar, ‘God Of Dreams’ and ‘Darwina’ would return £40 and £90 more to a £10 level stake, before commission is deducted. Assuming you are a frequent user, that can be a very small percentage and should prove more profitable in the long run.