Betting Exchange

The Betting Exchange acts as a marketplace, similar to a stock market, for betting between two or more parties with opposing views, so you are not betting against a bookmaker but another punter or punters. This system of betting offers punters lots more including better prices, in play betting and the opportunity not to bet if the desired price is not offered at any point. Like with stocks and shares, warrants and options, the terminology may sometimes be different, but the basic principles of betting exchanges are just as at financial exchanges.

This is really where the action happens for the brave, especially the brave with deep pockets but for anyone betting small or just starting out, again there are clear and simple instructions on how to join in the fun and as long as your price is realistic, your money will almost certainly be matched. All exchanges have a minimum bet for example, €3 at bookmaker Betsson.

When you log on to a betting exchange, for example, Betsson’s betting exchange, you'll see a set of odds and volumes. They represent betting offers put up by other members of the exchange. Here's a typical situation, representing the market for England to win the UEFA European Football Championship:

Volume (eur)200010005003000

You can back England to win at odds 4.80 and at most with EUR 1,000. This means that other exchange punters are offering the best odds of 4.80 to you, and the total amount they are staking is € 1,000.

If you want to bet on England, 4.80 is thus the best price you can get at the moment. If you bet €200 at these odds, your bet will immediately be matched. However, you may feel that these odds are not sufficient, so you would then make an offer to stake €200 at higher odds, for instance stating that you want to bet that amount at odds of 4.90. That offer will then stay at the exchange until, possibly, someone takes you up on it and then you have a bet. The vast majority of exchanges like Betsson or Betfair, will inform the punter whether a bet has been matched or unmatched and thus pending.

But returning to when the €200 bet at 4.80 was matched, the €200 was locked at your Betsson account. If England go on to become European champions, then you'll get your stake back plus receive the profit of your bet, €200 x (4.80 – 1) = €760. If England do not become European champions, you've lost the bet and the €200 is paid to the counterparty at the exchange.

The betting exchange facilitators, whether it be Betsson or Betfair, or anyone else are not interested in which party wins or loses, what they provide is an efficient and anonymous mechanism for entering and matching betting offers and most important of all, a mechanism to ensure, that you get paid. When you enter a bet with someone, their potential loss from the bet will be taken from their account at the exchange and held by the exchange until the bet is settled in order to guarantee that they can pay winnings to you.

If we return to the example, you'll see that there are offers for you to back England both at 4.80 and at 4.70. Assume that you want to bet a total of €2,000 on England. You can then wager €1,000 at 4.80 and €1,000 at 4.70. In total, you wagered €2,000 and at average odds of 4.75.

Sometimes, the volume at the best price is quite low. For this reason it's good to know what the 2nd and 3rd best prices are and almost all betting exchanges make this information readily available.

When your ‘back bet’ of €200 at 4.80 on England to win was matched, one or more people took the countering position meaning they were laying the bet.

You can do the same, betting against an outcome to happen which is something you typically cannot do at bookmaker sites and one of the main advantages of betting exchanges.

When you're backing an outcome, you want the odds in the bet to be as high as possible. Conversely, if you're laying, then you prefer to offer as low odds as possible to a punter with opposing views but remaining competitive against other ‘layers’. So, in the situation above, the best possibility for you right now is to lay England at odds of 5.00. You could even offer lower odds, but your offer would initially be unmatched and may remain so depending on the prices other layers are willing to offer and the amount a ‘backing’ punter is willing to stake.

Assume that you lay €50 at odds 5.00. If England loses, you get to keep the money of the backer and thus have a net win of €50. If England wins, you have to pay him his net win of €50 x (5.00 – 1) = €200.

So, your risk is €200 and if you win, your net profit is €50. In fact, when you're laying England to win at odds 5.00, it is exactly identical to backing England not to win at odds 1.25 = (200 + 50)/200).

Paying Commission and Commission Free Odds
Betting exchanges make money by charging a small transaction fee. Rules vary from exchange to exchange, but here's a typical way of doing it: The loser of the bet pays nothing, while the winner pays a percentage, e.g., 5%, of his net winnings.

So, returning to the backing bet on England, at a commission rate of 5%, 4.61 are the commission free odds corresponding to back odds of 4.80. When you compare odds at betting exchanges to odds at bookmakers, you should take the commission into account as you don't pay commission at bookmakers. Similarly, different exchanges have different commission levels, so even though one exchange may have better offers pre commission, another may be the best post commission. If you choose to see net odds then the odds table above will instead look like this:

Volume (eur)200010005003000