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What is a Betting Exchange and how do they work?

What is a Betting Exchange and how do they work?

This type of betting is different from traditional forms, in that you play against other players rather than the betting companies. This type of betting has long lived in in the shadow of traditional forms of betting but is slowly establishing itself in the digital world of betting. Today, Betfair is the biggest player within betting exchanges, with the largest selection of options and reasonable commission fees. However, betting exchanges also exist on sites such as Betdaq, Matchbook and Smarkets.

What is Betting Exchange?

The betting exchange is a format that has taken the betting market to new levels; challenging the major betting companies to rethink how they approach the betting market. It is because of betting exchanges that many betting companies have started offering live odds and the cash-out feature, which enables you to close your bet.

Betting exchange means that you bet against other players instead of with the betting company.

Betting exchange means that you bet against other players instead of with the betting company. You can set your own odds and let other betters play using your odds and bet with odds other players have set. The betting exchange markets that offer betting exchanges, skip having to set their own odds, unlike the traditional betting model. For the companies offering a betting exchange, the outcome of the match doesn’t matter as the players are not betting on their odds. The only role, the betting exchange companies have is to play the middle-man and hold onto the money, until the bet has been decided.

By acting as the middle-man the exchange companies take a smaller fee, that can vary in size, but earns them money. The fee is called a commission. The size of the commission varies from company to company and how much money is being wagered. The commission rate is usually around 1-5% of the profit. How much commission a company charges, is something you should always check before placing any bet. You will not pay a commission if you lose - but only on your winnings.

How does the Betting Exchange work?

The betting exchange works by allowing you - as the player - to back or lay a bet, meaning you can act as the bookmaker or as a player.

Backing an outcome

Backing an outcome means that you believe the bet will win. You play with odds that another player has laid and for an amount that the seller of those odds has decided upon. You act as the player and buy the odds from a seller who is acting as the bookmaker.

An example of backing an outcome:

You believe that Real Madrid will win the Champions League and so look for better odds than what the traditional betting companies offer - around 6.00x your money. At a betting exchange, you find a person who is offering odds of x10.00 your money for Real Madrid to win the Champions League with a wager of £/€100. In order to back these odds, you will play against the bookmaker who is selling these odds. If Real Madrid wins the Champions League, then you win your bet and get around £/€1,000. The £/€100 you originally invested you will get back, plus £/€900 from the player which acted as the bookmaker and lost their laid bet. As we mentioned earlier, the betting company will take their commission of the profit, for their role as the intermediary. This can, for example, be 2% of your winnings, which in this case would mean you get £/€980. Should Real Madrid not win the tournament then you would lose your investment to the person who acted as the bookmaker.

Laying a bet

In order to lay a bet, you have to believe it’s going to win. You set the odds and the amount required on a match, that you then let other players bet on. Should no-one play on the odds you laid, the bet is annulled and you get your money back. Therefore you are acting as the bookmaker and selling the odds to punters who are willing to back your odds and your amount required.

An example of laying a bet:

You believe that Chelsea is not going to win the Premier League next season. Instead of betting on another team to win the league, you instead lay a bet that Chelsea will win the league. You offer odds of 5.00 that Chelsea will win the league on a betting exchange with an investment of £/€50. Should no-one be willing to bet on the odds you have offered, then the bet will be annulled and you will get your money back. You even have the opportunity to remove your laid bet if no-one has purchased your odds.

However, should a player buy your odds for £/€50 you will be matched and the betting company will hold their bet until the bet is decided. If Chelsea do not win the league, then you will win the buyer's bet of £/€50 and you bet will sit. The betting exchange will even take a commission from the bet as it will have acted as the middle-man, so be prepared for what they require.

Advantages with the Betting Exchange

There are a number of advantages with betting using an exchange format. Firstly, you can find significantly better odds in a betting exchange compared to traditional betting formats. You can act as the bookmaker instead of betting yourself on outcomes and you do not have to feel restricted, which is common amongst successful betters who use normal betting companies.

  • The opportunity to get better odds than what normal betting companies offer.

  • The opportunity to be the bookmaker by laying a bet.

  • No risk of being restricted -  On the contrary in fact, you are rewarded for betting higher sums with lower fees with a betting exchange.

Disadvantages with Betting Exchange

Even if the advantages outweigh the disadvantages with the betting exchange, it doesn’t mean that they don’t exist. There are disadvantages which you need to be aware of if you are thinking of using betting exchanges. As we mentioned earlier, the betting exchanges take a commission as a fee for having acted as the middle-man in your back or lay of a bet. This commission varies in size but it means that you must have profit margin that is higher than the fee taken in order to be a winning player/bookmaker in the long-run. In addition, it may be difficult to match your laid bet or backing in smaller markets. If you are active in markets such as the Premier League, you will have no problem with this. But should you lay odds in a lower division, then it may be harder to find players who will want to but your odds with a large requirement.

The same thing applies if you want to bet in a smaller market, it can be hard to find a person who has laid your bet with realistic odds and requirements. However, as the betting exchange grows, the selection does too.

  • Commission fee from the betting companies

  • Harder to match bets in smaller markets

How you earn money with Betting Exchange

There exists many different theories and strategies on how you can be successful with a betting exchange. Unfortunately, it’s not that easy in reality as it demands a huge amount of knowledge about sport, but most of all about how the market works in order to be successful. However, there are a few little tricks you should know in the beginning to gain an edge in the market.

An example of a Betting Exchange strategy

You are planning to back Chelsea to win the Premier League next season, but you know that the club is facing a really tough match schedule. Instead of betting on Chelsea to win the league, for example with 5.00 on the betting exchange, you lay a bet that Chelsea will win the league at 5.00

Therefore, even though you believe Chelsea will win the league, you lay the bet before the season at 5.00 because you know that the team is facing a tough match schedule. After seven fixtures, Chelsea are now seventh in the league (as an example). However, let’s say the schedule is much easier now. In this situation, Chelsea’s odds of winning the league should be higher, it is now time to react and back the bet.

Now you have a laid bet that Chelsea will win the league at 5.00 as well as a bet that Chelsea will win the league at 10.00. Both bets with an investment of £/€100. If Cheslea win the league your laid bet will be a loss and you will have to pay the person who bought the odds £/€400. At the same time however, you will win £/€900 since you backed the bet at 10.00 and you are in the black, with a total of £/€500 excluding commission rates.

Should Chelsea not win the league, you will win your laid bet at £/€100 from the person who bought your odds. At the same time you will lose £/€100 on your backed bet at 10.00 and will end up with a total of zero.

This is obviously only an example. It could well be that Chelsea are top of the league after seven fixtures even with a tough fixture schedule. Then there would be a high risk that your laid bet would be a loss and that you would have a better chance by backing the bet with good odds. But you should consider it, if you are sure about something, and there is value and an opportunity to back the odds without running the risk of losing money as you have already laid a bet.

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