Betting Exchanges Explained

What is a Betting Exchange?

A betting exchange is most easily explained as an online platform whose peer to peer technology allows bettors to anonymously place bets between each other, as opposed to the traditional form of betting in which bets are placed with one primary bookmaker. Think of it as eBay for Sports Betting. No odds are originated by the exchange, instead, the exchange only decides the markets in which betting is allowed to take place and then serves as a neutral intermediary, facilitating the transactions between other parties.

How are Betting Exchanges different from other Bookmakers?

There are two big difference between betting exchanges and traditional bookmakers. The first is that bettors have the option to either “back” or “lay” a particular proposition. To “back” a position is to bet that a certain outcome will occur, whereas to “lay” a position is to bet that the same outcome will not occur. For example, to “back” Arsenal to win is to simply bet that Arsenal will win the match. To “lay” Arsenal to win is to take the opposing side of that wager, to bet that Arsenal will not win the match. (Note that in the case of a 1x2 betting market, to “lay” Arsenal to win is not the same as betting them to lose the match outright. You are simply betting for them not to win. However, a Draw would still result in a successful payout for the “layer.”)

The other big difference, and perhaps most appealing to customers, is the ability to choose the odds at which they place their wagers. The goal of traditional bookmakers is to offer odds that generate balanced action (or “achieve parity") and minimize their risk of taking a loss regardless of how the proposition plays out. The betting exchange has no incentive to balance its book, because it has no trading position on the bet. Thus the only limiting factor is liquidity in the market and competitiveness of the odds relative to those posted by other users.

For more information on betting exchanges, check out our Betting Exchange FAQs at the bottom of the page.

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Betting Exchange FAQs and History

What are the benefits of using a Betting Exchange?

The exchange model produces much less risk for the exchange in comparison to a standard bookmaker, thus the exchange can lower the transaction cost for placing a bet. The exchange then charges a mere 2%-5% commission fee from the winning wager, as opposed to the traditional over round method in which the commission (or “vig”) is priced into the odds, typically around 7%-10%. Lower transaction costs help increase payouts. Exchange odds are, on average, 10-20% higher than those of a traditional bookmaker.

How do I use a Betting Exchange?

Betting exchanges sound great, right? Now we'll walk you through the process of using an exchange to show you that they are great. A bettor submits a wager to “back” a side of a proposition and a corresponding odds payout. The wager is posted on the betting exchange, and the bettor must then wait for a person to agree with the terms of the proposition and take the other side of the bet, or “lay” it. This is where liquidity factors in. There must be a person on the opposite end of the wager that agrees the bet is fair and is willing to take the bet. Just because someone posts a generous “back” bet on Arsenal at 10.00 to beat Hull City does not mean someone is going to necessarily “lay” them at such terms. Depending on the exchange, one side of the bet can be filled by multiple people in order to fill as many propositions as possible. To “lay” a bet, just browse the options already posted by other users and find a wager that matches what you are looking for.

The flexibility of betting exchanges presents opportunities to identify value bets far more often than with traditional bookmakers. By having the ability to choose your odds and to choose whether to “back” or “lay” a proposition, arbitrage opportunities, in which the bettor has eliminated his risk altogether and will make a profit regardless of which outcome occurs, arise quite often. The exchange also has no problem allowing the consistent big winner to keep playing. Due to these factors, better odds and the ability to “be the bookmaker” when so desired, betting exchanges are the primary betting methods of choice for professional punters.

Are there any disadvantages to Betting Exchanges that I should know about?

Despite the clear cut advantages that betting exchanges provide, they do have a few drawbacks, the most relevant being the limited ability to place multiple parlay bets. Most exchanges feel that users are not capable of properly pricing these accumulators and, as a result, typically act in the same manner as traditional bookmakers by “laying” the multiples, as opposed to pegging customers against each other. Certainly this doesn’t affect the overall user experience for exchange customers; however, it could be the difference in a player choosing a traditional bookmaker over an exchange.

History and Review of Betting Exchanges

Betting exchanges have truly revolutionized the online betting industry and have severely cut into the market share of traditional bookmakers over the past few years. Flutter, the first version of a peer-to-peer betting website, was introduced in 2000, and shortly after Betfair was launched, coining the concept of “open market betting”, paving the way to become the world’s most popular and largest betting exchange on the Internet. Betfair has won numerous awards, including the Queen’s Award for Enterprise, and with over 2,000,000 customers and turnover in excess of £50m/week, continues to dominate the market for online betting exchanges.

With so many benefits for both the company and consumer, betting exchanges are the past, present, and future of online gambling, and Betfair is without a doubt the best exchange on the market today.

WSN.com fully endorses Betfair as a safe place to bet on sports, and we recommend Betfair over its exchange competitors.