Betting exchanges work differently to traditional bookmakers in that people bet against each other instead of against the bookie. This allows customers to place both back bets as well as lay bets which is perfect for traders along with standard punters.
If you’re new to betting exchanges, they can seem quite confusing. There may be some new terms to learn and features to get to grips with but they’re really not that complicated and hopefully, this guide will help you understand how they work and explain the benefits of using them.
How Do Betting Exchanges Work?
As there is no bookmaker taking bets and paying out winnings, you may be wondering where the returns come from or your stakes go to when betting on a betting exchange.
For betting exchanges to work, the customers must act as both the punter and the bookmaker.
For example, if you were to place a £10 back bet on Man Utd to beat Arsenal on a betting exchange at odds of evens (2.0), you will need another customer to place a £10 lay bet on Man Utd. When this happens, your bet is ‘matched’. If your bet wins, you’ll receive the other customer’s stake and if it loses, your stake will go to customers who chose to lay the bet. As the top betting exchanges such as Betfair Exchange and Smarkets have millions of customers, there usually isn’t a problem in getting your bets matched by other customers.
You probably know that bookmakers make their money by offering odds slightly lower than the true odds. This is called the ‘bookies margin’. As there is no bookmaker when betting on an exchange, you may be wondering how they make their money. Instead of shaving a bit off the odds, betting exchanges charge a commission on bets. Commission rates vary between betting exchanges and are usually only applied to winning bets and not losing ones.
Why Use a Betting Exchange?
A betting exchange can offer many advantages, some of these include:
- Better odds than a traditional bookie (almost always)
- Extensive in-play offerings
- In-play betting and cash-outs
- No “max bet” limits
- The ability to lay (bet against) selections
- Potentially many more events and markets to get involved in
These reasons above are just a few of the many reasons to think seriously about using a betting exchange over a traditional bookie. Below, we will cover some of these reasons in a little more detail including the concept of lay bets which is an important concept to understand when using an exchange.
Placing Lay Bets
The main difference between betting exchanges and traditional bookies is that you are able to place lay bets. These are bets when you are betting on something not to win.
When you place a bet with a bookmaker, you are betting on it to win such as Manchester United to beat Arsenal or for there to be Over 2.5 Goals in a football match. These are called Back Bets.
With lay bets, you are essentially acting as a bookie and accepting bets from other members of the exchange.
For example, if you placed a lay bet on Manchester United, this would win if Arsenal won the match or it ended in a draw ie. Any possible outcome where Man Utd do not win.
Stakes and returns work differently when placing lay bets compared to back bets and to keep things simple, there are two things to remember.
- Your stake is the amount of profit you will make if your lay bet wins
- The liability is the amount you will lose if your lay bet loses
Here is an example to help explain lay bets and liability:
Below is a screenshot of the market for the Denmark v Belgium football match taken from Betfair Exchange.
- The blue boxes display the back odds for each outcome
- The pink boxes display the lay odds for each outcome
The lay odds for Belgium are 2.12. If we were to place this bet, our bet would win if either Denmark win the game or it ends in a draw.
The following image shows the bet slip after adding a lay bet on Belgium.
We have entered £10 in the stake box which means that if our lay bet wins, we will make £10 profit.
As we are placing a lay bet, we are acting as the bookie would at a traditional bookmakers. If you can imagine a customer placing a £10 bet at odds of 2.12 with the bookie, if the customer wins, the bookie would have to pay £11.20 out of their own pocket as winnings. This is called the liability and it’s the amount that we will lose if our lay bet loses.
One of the biggest advantages of a betting exchange is that the odds on offer will almost always be better than most, if not all, bookies for the same selection! Betfair suggest that winning exchange odds on horses are the highest on their exchange a whopping 96% of the time!
There are some exceptions to this, so look out for bookies having special offers and boosted prices which could sometimes beat those available at the exchange. Also, be aware that when using an exchange some less popular events might have limited money available for matching bets against, in other words, the odds might be lower than at some bookies in some instances (but this usually only applies to less popular events).
Betting exchanges usually work slightly differently to a normal bookie and might seem a little bit unusual when you first come across them, especially if you are used to betting with a more traditional and established bookie such as Coral, Betfred or William Hill.
The first thing you will notice is that the odds look different to what you are used to, for example you might be used to seeing a football coupon that looks a little bit like this:
In the above image you can see a fairly typical football page and odds which we are all used to using such as Netherlands @ 4/6 to win the match. Now let’s look at this same example form betting exchange Betfair:
You will notice straight away that Netherlands are now priced at 1.69 to win (the blue number), this is an example of decimal odds in action and simply means if you were to bet £1 you would be returned £1.69 in the event of a win (we simply multiple our stake by the decimal odds to find out our total winnings, inclusive of our original stake money).
This style of odds might seem unusual at first, but if you do start betting regularly at exchanges you will soon become accustomed to them and, in my own case at least, even prefer them to the fractional alternative!
Betting Limits, Cash Outs and In-Play Betting
When using a traditional bookie you might have noticed that, sometimes, you are limited in how much you can wager on a certain event. You might also have noticed that whilst in-play betting and cash-out is generally offered, some bookies will, at their discretion, regularly disable these features whilst an event is in-play.
Betting exchanges work in a different way to this and will never limit how much you can bet on a certain event nor the ability to cash out or bet in-play, this is thanks to the concept of players betting against each other on an exchange rather than against the bookie themselves.
The downside here is that, sometimes, there won’t be any money available in the exchange market to meet the amount you wish to bet (be it in-play or before the event) this can, in-turn, also means that the cash-out button won’t be available either. This availability of funds is usually not a problem when betting on big mainstream events which see a lot of players engaging with and betting upon, but be aware this can sometimes be an issue on smaller and less popular events.
Fast Settlement of Bets
Last but certainly not least, one of the biggest reasons for using a betting exchange for many will be their ability to settle bets extremely quickly, in many cases within just a few seconds of the bet being won, even if the event in question is still ongoing.
For example, if you had bet for over 2.5 goals in a football match and the third goal was scored after just 30 minutes, betting exchanges would aim to settle such bets within just a few seconds of this third goal happening!
Best Betting Exchanges
Online betting exchanges have been around for over 20 years with the first being Betfair Exchange which was officially launched in 2000. Today, there are four main exchanges which we have listed below.
Betfair Exchange is the worlds biggest online betting exchange and has been active for over 20 years. Due to their large customer base, the liquidity on Betfair markets is generally excellent which is one of the many reasons they are used by millions of customers worldwide. They’re a trusted and reputable brand that operates sportsbook, casino and poker products which are also very popular.
Smarkets was launched in 2008 as a competitor to Betfair Exchange. Their main selling point is their low commission rate of just 2% that they charge customers. During their 13 years in operation, they too have built up a large customer base which has helped with liquidity which in turn, attracts even more customers. They also have an excellent welcome offer that is available to all new customers.
Matchbook was launched in 2004 and offers a good alternative to Betfair Exchange. Although not as big, they are still an extremely popular online betting exchange and similar to Smarkets, and charge a much lower commission than Betfair.
Betdaq was launched back in 2000 along with Betfair Exchange but never achieved the level of success as their main competitor. However, they are reportedly the second largest betting exchange with a 7% market share and used by a large number of traders and punters around the world. Along with their exchange, they also offer fixed-odds betting, an online casino and sports pools.
Betting Exchange Terms Explained
Arbing is when you’re able to lock in a profit regardless of the outcome due to favourable back and lay odds. When the back odds at one bookmaker or betting exchange are greater than the lay odds on an exchange, this is called an arb. By placing both a back and a lay bet with different providers with ideal stakes on each, you can lock in a profit.
A back bet is when you are betting on something to happen ie. Liverpool to beat West Ham. You can place back bets at both traditional bookmakers and on betting exchanges.
Betting exchanges charge commissions which are generally only applied to winning bets. Commission rates vary between betting exchanges and so have different commission plans to choose from.
Betting exchanges use decimal odds which are common in Europe. The difference between decimal and fractional odds is that decimal odds include the stake. For example, 5/1 in decimal odds is 6.0. To determine your returns, you simply multiply your stake by the odds eg a £10 bet at 6.0 would return £60.
When odds are ‘drifting’, this means that they are increasing ie, going from 2/1 to 3/1 to 4/1 etc.
A lay bet is when you are betting on something not to happen ie a lay bet on Liverpool would win if Liverpool didn’t win (lost or drew). You can place lay bets on betting exchanges but not with bookmakers.
The liability is the amount of money you stand to lose if your lay bet doesn’t win.
In order to place either a back or a lay bet on a betting exchange, there must be liquidity in the market at your chosen odds. The liquidity is the amount of money available. If your stake is greater than the liquidity amount, your bet may not be matched immediately and will remain unmatched until another customer bets against you.
When placing a bet on a betting exchange, another customer must match your bet for it to be placed. If there is liquidity in the market at your chosen odds, providing that your stake is below or equal to the liquidity amount, your bet should be matched immediately.
If the liquidity amount is below your stake. Your bet will be unmatched until another exchange customer places an opposing bet to match it.
Some people use betting exchanges for sports trading. These people place bets with the expectation that the odds will move in a certain direction. If they do, they are then able to place an opposing bets in order to lock in a profit regardless of the outcome of the event.