How a betting exchange works in practice

Continually in search of better odds in a highly competitive market, more and more bettors are using a betting exchange for a greater all-round betting experience. This guide aims to shed light on the idea and highlight the reasons behind its ever-growing popularity.

Betting Exchange

A betting exchange vs traditional betting

Experienced bettors will be fully aware of the benefits of a betting exchange but for beginners to betting, the process can appear somewhat strange and take some getting used to.

It’s first worth pointing out the major differences between regular bookmakers such as Ladbrokes, bet365, or Coral, and a betting exchange such as Betfair, Smarkets or Matchbook as, from first glance, there can appear little to separate one from the other.

When betting the traditional way, as we say, a bettor placing a bet will be placing money on the outcome of an event with the view to making money at the expense of the bookmaker.

A betting exchange differs from this in how it serves as a middleman and acts as an online platform for bettors to both back and lay bets against one another. In its simplest form, it allows for a customer - more commonly referred to as betting traders - to bet on or against something happening, with the added buffer of being able to alter their original stance in real-time.

As much as 20% more value can be found with a betting exchange 

As well as this, an exchange will typically offer better odds as it’s essentially a free market which sees odds controlled by the punters, not the bookmaker, who in traditional betting set odds in their favour to ensure they cover their back in terms of profit.

New research has shown as much as 20% more value can be found with a betting exchange compared to a traditional bookmaker who simply cannot rival this and must face up to the ongoing problem (for them) of customers opting to bet solely on sports exchanges.

Betting exchange explained

Every bet placed on a betting exchange will involve two bets between two punters – one bet backing the subject to win, and a second betting against the same subject to lose.

In an exchange, these terms are referred to as:

  • Backing a bet (betting on an event happening)
  • Laying a bet (betting against an event happening)

For instance, if you believe Barcelona are going to win a football match, then you would ‘back’ the bet. But if you think they’re not going to win – so they will lose or draw – you will ‘lay’ a bet against Barcelona.

The odds generated from the proposed bet are set by punters who can request odds from fellow bettors, as well as offer odds. The money staked is held by the exchange until the bet has been resolved with whoever wins the bet liable to pay a rate of commission to the betting exchange, if you’re wondering how they make their money from it all.

Understanding Betfair Exchange

If you’re to venture into the world of the betting exchange, your first stop is likely to be with Betfair Exchange. Why? Because since being created by entrepreneurs Andrew Black and Edward Wray at the beginning of the new millennium, Betfair Exchange has become the world’s leading and best exchange site and is renowned for being the benchmark in this form of betting and reshaping the wider betting industry.

Betfair Exchange Commission

Where an exchange such as Betfair allows for traders to bet against each other, no profit is made from how the odds are set, unlike traditional betting sites. It makes its money instead by applying a commission on the net profit earned within the betting exchange.

This applies across the board, regardless of the exchange site you use though the rates differ depending on the exchange. This is only if you’re successful in your bet though – a trader who loses a bet will not need to worry about paying a fee.

Betfair calculates how much commission to charge by multiplying the trader’s net winnings by the Market Base Rate (the maximum commission rate you pay on a market, determined by where you live).

In the case of Betfair, new customers will be subject to a 5% commission rate first of all which is later reduced if the trader turns out to be a frequent trader.

Betfair Exchange Cash Out

Revolutionising the industry with the betting exchange wasn’t enough for Betfair who managed to do so again with the introduction of the Cash-Out function. Now commonplace for all of the leading bookmakers, the feature continues to be very well received among bettors and traders who have greater freedom and control over their betting.

Using Cash-Out on a betting exchange allows you to secure a win or cut your losses on a bet without having to wait for the conclusion of an event, just as you can on a standard betting site. The feature offers complete transparency by displaying the value of your bet in real time and how much you stand to win or lose at a specific time.

Is using a Betting Exchange the smart way to bet?

When you consider the many benefits of using a betting exchange over a traditional bookmaker, you have to say yes. And it appears more and more bettors are working out the benefits for themselves.

For a start, without the betting operator needing to rely on betting margins to make profit, better odds are guaranteed instantly which cannot be said for traditional betting sites who are unable to stand out in a crowded marketplace and offer little in terms of value.

Betting exchanges grant bettors the freedom to bet how they wish.

What’s more is the more extensive range of odds and markets available and a greater choice overall. If you’re not too impressed with the odds market offered on the exchange, there’s scope for you to find your preferred market, set your own odds and find somebody willing to lay against what you’ve proposed. Betting exchanges grant bettors the freedom to bet how they wish.

And if all that wasn’t enough, exchanges allow for bettors to trade their positions with greater flexibility than you’d find anywhere else. Change your initial stance on how a game will pan out based on what’s happening in real time and still make profit!

What are the drawbacks of a Betting Exchange?

Having to pay commission is a potential stumbling block for people wanting to start out using a betting exchange. At least the rates issued initially are. Of course, these can eventually be lowered through frequent trading, as is the case with Betfair but having to pay if you back a winning bet, albeit if you have done so with better odds, will deter some from ever giving a betting exchange a chance.

Another factor worth considering is the fact you may be prevented from betting on the market you’d like to due to not finding somebody to match your bet and wager against you. This can be a common issue if betting on obscure leagues or markets for instance, in which case using more traditional betting sites may be the easier option.