What is a Betting Exchange?

Betting exchange

Although betting exchanges have now been around for more than 15 years, many people who like betting on football are still a little wary of them and prefer to stick to their favourite online bookmaker instead. However, betting exchanges can offer unbeatable odds and are well worth exploring, so read on to find out exactly how a betting exchange works.

Betfair is by far and away the dominant force in betting exchanges, and whilst there are several others out there, Betfair is the one that most savvy punters use on a regular basis.

Betfair launched in 1999 with the infamous “Death to the Bookmaker” campaign, created by a couple of British guys who saw a gap in the market and came up with a brilliant technological way to cut out the bookmaker from the betting transaction. Betfair now also offer a standard sportsbook, however, as well as casino, bingo and poker products, but it is their exchange that they remain most famous for.

What is a Betting Exchange?

Betfair Exchange LogoA betting exchange is a mechanism where two sides of a wager can be matched with each other, much like two friends might strike a bet about whether or not Man United will win the league one season. An exchange brings together two people who wish to make that bet. It was originally called peer to peer betting, and the exchange acts as a marketplace or middleman that facilitates the bet each party wants to make.

Rather than going to a bookmaker or a regular betting site which normally factors in a profit margin of 5% to 20%, you can go to a betting exchange where there is no margin, and so nine times out of 10 both sides of the bet end up with better odds.

Going back to our example of Man United winning the league; if we assume that they are doing very well and have a perfect 50/50 chance of lifting the trophy, then the fair and genuine odds would be evens. Two friends making this wager face to face might make a straight £10 bet with no odds involved, and this equates to one staking £10 with the other at odds of evens.

But if those same two bettors didn’t know each other and had no one to bet with, they would be forced to go to a bookmaker who might have a market of “Man United vs The Field” with both parties priced at 10/11, or perhaps even as low as 5/6. In this instance, both bettors would have to accept odds below the real value and probability of the bet, because the bookie has worked in their margin.

A betting exchange brings bettors from around the world together and matches them up with someone who wants to bet the opposite way. The exchange’s fee is usually no more than 5% of the winner’s profit, so in this way they are able to offer better odds. As the biggest exchange, Betfair has around one million active customers and so they are able to match bets between people from all over the world. Plus, because they ring-fence funds from both sides of the wager there is never any chance that your bet won’t be paid out. Both the back (a traditional bet) and the lay (effectively the bookmaker side of the transaction, a wager against the event) parties must leave sufficient funds to cover their liabilities with Betfair and this ensures the betting exchange model is 100% safe.

Benefits of Using a Betting Exchange

The biggest and most obvious benefit is that you will usually get bigger odds at a betting exchange. This is especially the case on outsiders, for example correct score bets or first goalscorer bets, where the odds at an exchange can often be as much as 30% better than at an online bookmaker or even higher.

However, exchanges have numerous other benefits too. For successful punters there is no danger of having your account closed at Betfair, nor of seeing your maximum bet size restricted. Betfair are more than happy for people to win as they get their cut either way, the people paying out are those on the other end of the bet who lost.

Betfair Exchange

In addition, at a betting exchange you can lay bets, that is to say that you act as the bookmaker. For example, if you are convinced that Liverpool won’t beat Arsenal, you can lay Liverpool. That means you are taking the bets of people who think Liverpool will win, so if Arsenal win or the game is a draw, you win their stake. Of course you could use a normal bookie and bet on Arsenal +0.5 or even the double result market Arsenal and Draw, but laying is also useful in wider markets such as who will win the league or correct score betting where it wouldn’t be as easy to cover the other side of the bet.

Laying bets is also a useful way to trade, hedge or cashout bets. Most top betting sites do now offer a cashout facility, letting you close bets early to either lock in a profit or minimize a loss, but a betting exchange gives you more control over this as well as better odds for your trade.

Another benefit of using a betting exchange is that their in-play betting facilities are usually very good, and again, with significantly better odds than you’ll find elsewhere. This is because in-play betting is less risky for an exchange to operate as the market correctly alters the prices automatically in response to the action, as opposed to bookies who have to manually control the odds.

Downsides of Betting Exchange

There are two main drawbacks of using a betting exchange, and the first is that they don’t usually offer as good a range of free bets and betting offers as you will find at a regular bookmaker. For example, the Betfair Sportsbook has much better football promotions than the Exchange product.

Exchange national League

The other problem is liquidity, which means the availability of money on the other side of the bet you wish to make, or how many people are betting on the same market. If you want to bet on Everton to win 3-0 there has to be someone out there prepared to lay that bet, and on smaller markets or more obscure bets concerning lesser leagues you may find the liquidity limited.

However, for those betting on the biggest leagues and events such as the Premier League, the Champions League and other main betting markets this is unlikely to be an issue. On some specials bets and novelty markets the lack of liquidity may mean that better odds will be found at a bookmaker but in general, for things such as match odds and tournament outrights, the exchange may be the best place to check first.