What is a Betting Exchange?

Monday, November 19th, 2012
By Racepedia

The Concept of a Betting Exchange

The concept of a betting exchange is simple but the mathematics and computer technology behind it are not, only the recent advances in technology have made the betting exchange possible. An exchange allows two parties to bet against each other, one party believes an event will occur e.g. a horse will win a race; the other party believes an event will not occur e.g. Team A will lose. The outcome after the event is that one party will lose and the other win (unless bet is void).

The concept is perhaps better explained with an example. Imagine two people in a pub, one party says ‘I think Horse B will win for certain, I would take odds as low as 2/1’ and the other party replies ‘I will give you 2/1 on him’, they agree on the terms of the bet. If the one party wins they get twice their money back as profit (betting on a 2/1 horse realises a profit of twice your stake), if the second party wins they keep the stake of the first party. Essentially one party is betting an event will occur (known as a back bet) whilst the second party is betting an event will not occur (known as a lay bet). Examples of back bets are:

  • Football team B will win when playing team A.
  • A horse will win a certain race

Examples of lay bets are:

  • Football team B will lose when playing team A
  • Horse A will lose a certain race etc.

A betting exchange connects these two parties over the internet and acts as a middle man charging a commission (about 5% of any winning bet) to organise the bet and its financial outcome. Betting is anonymous so you do not need to worry about upset losing bettors chasing you for their money back. The odds for an event reflect what the market is thinking, if many people believe a horse will win then the odds will be low (short), if they believe a horse does not have a chance of winning the odds will be high (long). When one party accepts the terms of the other they are said to be ‘matched’.

Betting Exchange

A screen capture of the Betdaq Exchange interface

Advantages of the Betting Exchanges

There are some big advantages that betting exchanges have over their rivals the bookies. The first is that odds are often better than those available with bookies. In horse racing it is often seen that horses with odds of 100/1 with the bookies will be 500/1 on the exchanges. These odds advantages can be seen across most markets, the exact odds advantage can be checked on the timeform.com website which compares Betfair start price to industry start price.

The second advantage is that exchanges allow punters to ‘be the bookie’. By enabling people to ‘lay’ bets they are allowing the market to decide the price/odds of the event and not a third party e.g. a bookie. This is very unique because people can express what they think the true odds of the event occurring are and thus the odds reflect the opinion of the market. Allowing people to bet on losing events is unique to the exchanges and adds a very interesting (and scandalous, as discussed later) aspect.

The final advantage is no longer limited to bet exchanges. ‘In Play’ markets allow punters to bet during a sporting event. Betting in play is a fast and furious way to make/lose money and odds ‘in play’ can be very enticing (particularly in horse racing). In play is now available with the bookies but the opportunities for profits are far greater with the exchanges.

 

Making Money on the Betting Exchanges

There are many ways to make money on the betting exchanges, some are quite obvious but others are a little more creative.

  1. Place back bets. If your selection wins you will make money.
  2. Place lay bets. If your selection loses you will make money.
  3. Trading – Placing a back bet at high odds and then later a lay bet at low odds, or, placing a lay bet at low odds then later placing a back bet at high odds, gives you a profit regardless of the outcome (see article ‘what is trading’ in our betting tips section for more info).
  4. Using bookie free bets and then laying them on a betting exchange (see article ‘matched-betting-explained’ in our betting tips section for more info).

Betting Exchange Corruption

There have been ethical concerns over betting exchanges allowing people to bet on an event not occurring (laying) almost since inception. The problem with enabling people to bet on losing events is that it allows people with inside knowledge/involvement to rig the event and bet on the outcome they know will occur. For example, it is a lot easier for a horse to lose than it is to win and consequently it is a lot easier to bet on a horse to lose and ensure it happens than bet on a horse to win and ensure it happens. The same can be said of a number of other sports e.g. betting on who will take a penalty if a team is awarded one etc. This has led to tight legislation surrounding betting exchanges with the hope of keeping corruption to a minimum; the scandals concerning match rigging and race corruption are frequent despite of this.

Betting Exchanges

The two largest betting exchanges are listed below.

BetfairThe biggest of the betting exchanges, click on the link to open an account and claim your free bonus.

BetdaqAnother good betting exchange growing in popularity and market liquidity, click on the link to open an account and claim your free bonus.

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