A betting exchange is an online platform where you can place bets on various events, most commonly sports, and potentially earn money. While they operate similarly to traditional bookmakers, there are some key differences.
To learn how betting exchanges work, how they differ from traditional bookmakers, and what their advantages are, read this article.
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What is a betting exchange?
Imagine you want to place a bet on a specific event. Typically, you would go to a bookmaker with set odds. However, there’s another option: a betting exchange.
A betting exchange is a marketplace where people bet against each other instead of against the bookmaker. This allows you to set and accept higher odds, potentially increasing your earnings.
Betting exchanges are most commonly used for association football events. That’s because this type of sport is one of the most popular choices for bettors, offering a wide range of markets and betting options.
On betting exchanges, you can either back or lay a bet on a particular sports betting event. When you back a bet, you are wagering that a specific outcome will occur, such as Team A winning. When you lay a bet, you are betting that the outcome will not happen, like Team A losing.
How does a betting exchange work?
Let’s use a real-life example of horse racing to better understand how betting exchanges work. Here’s how a betting exchange operates:
- Each player opts for a horse to bet on.
- A player who believes a particular horse will win sets the odds. The higher the odds, the less likely the player thinks the horse will win.
- Other players review the odds and decide if they agree with the assessment. If someone agrees, they place a bet at the offered odds.
- The odds constantly change based on how players evaluate each horse’s chances. This can even happen during the race. For example, if a horse suddenly takes the lead, the odds of its victory will drop significantly.
- The odds are finalized once the race ends.
Simply put, on a betting exchange, you place a bet, analyze the odds, and make wagers with other players.
History of betting exchange
The concept of betting is not new, as people have always enjoyed placing wagers. Nonetheless, betting exchanges are a relatively new phenomenon made possible by the advent of the internet.
The first betting exchange, Betfair, was founded in 2000. Initially, players were hesitant to embrace the new idea of trading bets, but it soon revolutionized gambling. Unlike traditional street bookmakers, online betting exchanges offered a different experience with no fixed odds, free bets, minimum deposits, and restrictions.
As betting exchanges gained popularity, many other platforms emerged, such as Ladbrokes Coral, Matchbook, Betdaq, Gala Colar Group, etc. But despite the competition, Betfair remains one of the largest and most significant platforms in the betting exchange industry.
Betting exchanges vs. traditional bookmakers
While both betting exchanges and traditional bookmakers let you bet on sports events, their approaches are quite different. Let’s take a look at the main differences.
Bookmakers: Intermediaries setting the odds
Bookmakers act as intermediaries between bettors. They set the odds for events and take bets, making a profit by including a margin in those odds (it’s called vigorish). Their goal is for players to lose. Bookmakers also control the betting process by setting fixed odds that don’t change before the event starts and by limiting the maximum bet amounts. Nonetheless, bookmakers provide more betting options like parlay or spread betting.
Examples of bookmakers
- William Hill (bookmaker) – one of the oldest companies in the world, offering bets on both sports and non-sports events.
- 1xBet – covers a wide range of sports and events, attracting players from all over the world.
- 22Bet – one of the best bookmaker, known for offering competitive odds.
Betting exchanges: Peer-to-peer platforms
While betting exchanges also serve as intermediaries, they don’t have bookmakers running the show. Instead, these platforms allow players to bet against each other. The exchange earns a commission on each transaction. Unlike bookmakers, there are no fixed odds here; players set their own odds, which can change based on supply and demand. There are also no limits on bet sizes; you decide how much to wager. Plus, you can act as a bookmaker by offering your own odds.
Examples of betting exchanges
- Betfair – a market leader that also offers multiple tools for managing risks and maximizing profits.
- Smarkets – a global company known for providing the most competitive commissions.
- Matchbook – a reliable platform that boasts the lowest commissions on the market.
The difference between bookmakers and betting changes
| Characteristics | Bookmaker | Betting exchange |
| Business model | An intermediary. The bookmaker sets the odds and accepts bets. | A marketplace where players bet against each other. The exchange provides the platform and charges a commission. |
| Odds formation principle | Analyzes various factors and sets the odds with a margin to guarantee a profit. | Odds are formed through the interaction of supply and demand in the market. Players offer their own odds, and a transaction occurs when a buyer is found. |
| The player’s role | The player selects an event and outcome, placing a bet at the bookmaker’s offered odds. | The player can both offer their own odds (acting as a bookmaker) and accept offers from other players. |
| Risks and opportunities | Risk of losing the bet. Opportunity to win a fixed amount at known odds. | Risks are more varied: you can win or lose more than initially expected. Opportunity to get higher odds but with greater risk. |
| Taxation | Winnings are usually taxed, but rates can vary by country. | Typically taxed, but rules can differ by jurisdiction. |
| Commission | Included in the odds (bookmaker’s margin). | Charged on each transaction, usually proportional to the bet amount. |
| Bet limits | Can set limits on maximum and minimum bets. | Generally, no strict limits, but there may be limits for new users or specific events. |
| Accessibility | A wide range of bookmakers available in most countries. | Fewer betting exchanges compared to bookmakers. |
| Complexity | Relatively simple to understand. | Requires more knowledge and experience, especially for beginners. |
Traders and arbitrageurs
Some players on betting exchanges use risky and complex strategies to make a profit. They are known as traders and arbitrageurs.
Arbitrageurs search for situations where different odds are offered for the same event. Essentially, they place bets on all possible outcomes to guarantee a profit. In gambling, this strategy is also called the mathematics of bookmaking.
Traders, on the other hand, are more risk-prone and try to profit from fluctuations in odds. For instance, they might bet on one team to win and then, when the odds become more favorable, close the bet to secure a profit.
These strategies can sometimes distort supply and demand, leading to potential issues like artificially creating demand or supply to influence an asset’s price and cause corruption.
Pros of betting exchanges
Here’s why betting on betting exchanges might be beneficial for you:
- Better odds. Unlike bookmakers, who include their margin, betting exchanges let players set their own prices. This often results in higher odds, which can boost your potential winnings.
- No limits. On betting exchanges, you have full control over the size of your bets and the events you choose to bet on. You can even control the type of your bets and choose options like even money.
- Profit from others’ bets. Since you can act as a bookmaker on betting exchanges, you can set your own odds. If other players accept your odds and lose, you can earn from this.
- Lay betting. Betting exchanges allow you to bet on outcomes not happening, unlike traditional bookmakers. This allows you to profit from a wide range of events by betting against them.
Cons of betting exchanges
Although betting exchanges offer flexible terms and better odds, they come with higher risks compared to traditional bookmakers. Here’s why:
- Complexity. Betting against other players can make the process more complicated. You need to grasp how it all works to succeed.
- Low liquidity. There might not always be enough players on the exchange, making it harder to find the odds you want.
- Commission. Betting exchanges charge a commission based on your winnings. Thus, they can be higher.
- Higher risks. You could lose more than just your bet, including part of your deposit, especially if the odds drop significantly.
Final thoughts on a betting exchange
If you want more control over your bets and winnings, betting exchanges are definitely the way to go. Unlike traditional bookmakers, you can compete with other players, influence the odds, and use more flexible strategies. However, the potential for higher winnings also comes with greater risks. So, make sure to thoroughly understand how this market works before diving in.
