While most, if not all people are aware of the role bookmakers play in the gambling industry, betting exchanges remain somewhat of a mystery to many regular punters, not to mention those who only have the occasional flutter.
Any punter reluctance to use a betting exchange is usually easily explained by a lack of understanding of how an exchange works and what it can offer. To those who are ‘in the know,’ once the workings and plus points of an exchange have been established, there is often no looking back. Here is a guide to what betting exchanges are, and the relative benefits and disadvantages they possess in comparison to the more established fixed odds bookmakers.
What is a betting exchange?
Unlike a conventional bookmaker, when you place a bet with a betting exchange, you are not betting against the house, but are in fact betting against other punters who are backing the opposite outcome. A betting exchange is simply a facilitator of the bet, and therefore does not usually make money from a losing bet. Instead, an exchange takes a commission either of any bet placed, or usually from winning bet profit (of which there is always one to be had, as in a battle between two customers, one will always win and another will lose, except in the case of a void bet).
In additional to backing an outcome, players can also ‘lay’ that outcome, meaning that they can bet against that outcome being achieved – not an option with a regular sportsbook as the book always ‘lays’ the bet you place.
How does a betting exchange work
For a betting exchange to work there must be a backer and a layer. A backer is someone who wants to bet on an outcome, and a layer is someone who wants to bet against it happening.
With a conventional sportsbook, the bookmaker always lays the bet, so the bookmaker makes its money from punters losing more money than they win. On an exchange, an outcome can only be backed if another punter is willing to lay against that outcome being achieved. Obviously, the more people that back and lay, and the more money they are willing to stake, the higher the liquidity becomes in that particular market. When a player wants to back or lay an option, the amount which is currently available to be played is listed under the odds, and often different odds are offered on the same outcome (as naturally some people will offer to back and lay at different rates).
When backing a bet, the bet is won or lost as per the terms of a traditional bookmaker, except commission will be taken from the profit. (For example, Matchbook take a 1.5% commission on profit from a successful bet).
One event players must be acutely aware of is that when laying a bet, that same player must cover his or her liability, in the way a traditional bookmaker would. Therefore, if you lay €100 at potential odds of 2.00, then a losing bet will cost €200, as the stake is lost and you must pay the profit earned (€100) by the winning backer (in the same way a bookmaker would). All responsible exchanges ensure customers cannot exceed their liability within their betting bank.
Additionally, when backing or laying a bet, customers also have the opportunity to ‘post’ a bet, meaning that they can enter their own odds that they want their bet to be accepted at. Of course this bet will remain unmatched until the time another player wants to match the bet at those odds.
What are the benefits of betting exchanges?
The benefits of exchanges to players are fourfold;
- Due to the limited overrounds, exchanges are able to offer the most competitive odds on the market.
- Liquidity is set by the amounts available for trading, rather than a book’s exposure, ensuring higher limits.
- Winning players do not have accounts closed as it is within the interests of an exchange for bets to be made and won.
- Exchanges have a more favourable approach to trading and arbitrage players.
What are the disadvantages (in relation to regular sportsbooks)?
The main disadvantage can be in the number of events and markets available, although the biggest exchanges such as Betfair offer a significant number of options, closely resembling a large bookmaker (Betfair does in fact offer a traditional fixed odds sportsbook platform, as does Ladbrokes of course, which is more prominently known as a fixed odds book). Similarly, on smaller events, liquidity may be low, so you would be better off going to a large sportsbook to back an outcome.
Exchanges also rarely offer the kind of appealing sign-up offers that fixed odds sportsbooks entice customers with, mainly because they don’t have to – the offer is in the quality of the odds available. An idea is to open an account with a provider of both an exchange and sportsbook (such as Betfair and Ladbrokes) and then invest any winnings from a sign-up offer immediately into the exchange where the odds are more favourable.
The main betting exchanges and their current offers
The biggest betting exchanges operating on the market are Betfair (owned by Paddy Power), Ladbrokes, BETDAQ (which is in fact owned by Ladbrokes) and Matchbook.
Betfair typically charges 2-5% commission on winning bets (applying a discount rate based on loyalty), and also offers a conventional fixed odds sportsbook option where customers can use the same bank to bet on both platforms. As a sign-up offer, Betfair are currently offering to match a €10 initial stake from new customers with €30 in free bets.
BETDAQ starts its normal commission rate at 5% on winning bets, but it offers a layered structure where regular players are able to bring that commission rate down to 2% dependent on volume of bets. The exchange is currently offering €25 in free bets once a new player earns their first 4 exchange points by winning or losing €100.
Ladbrokes’ exchange commission system is the same as BETDAQ’s (unsurprising given they are now part of the same Ladbrokes Coral Group). The exchange is currently offering a £10 match bet, meaning if a new customer’s first exchange bet loses, the stake will be refunded as a free bet up to £10.
Matchbook charges 1.5% commission on backed bets (both won and lost) at accepted odds, and 0.75% commission on posted bets (the commission on cricket is 3% of the net win). The exchange is currently offering new customers £50 cash back by placing £50 in back or lay selections within the first five weeks of opening the account (the qualifying period).