When we think about traditional Sports Betting, we think about a wager between a bookmaker and a sports bettor. This means that when a bet is won, the bettor receives money from the bookmaker, and when a bet is lost, the bettor loses the money to the bookmaker.
There are, however, alternatives to the traditional betting-system, one of them being to go through a Betting Exchange. This gives the bettor the option to function as a bookmaker, and instead of choosing the team you think will win, you can choose the team (or draw) you think will not win. This is what we refer to as backing and laying bets.
This means that to back a team, you believe this team will win the matchup.
This also means that when you lay a team, you believe this team will not win the matchup.
If you believe Liverpool will beat Norwich in the first round of the Premier League in the 2019-20 season, you place a back bet on them. However, if you think they are not going to win, meaning they either lose or draw, you place a lay bet on them.
Effectively, this means that if you place a bet to back Liverpool, you win if they win. If you choose to place a bet to lay Liverpool, you win if they lose or if the game ends in a draw.
It is in the case of laying a bet that a bettor can take on the role of a bookmaker. For example, if you lay the bet on Liverpool, you will have taken a stance towards the game. This means that you think they will either draw or lose against Norwich.
This is exactly the same as any bookmaker will do towards sports bettors.
When playing a back bet, the odds works just as in traditional betting, but when placing a lay bet, the formula changes slightly. Read here to get an explanation of how the liability of the lay bet in Betting Exchanges work.
In addition to being used as a single tool for sports bettors, Betting Exchanges are used in Matched Betting, and play an incremental part of creating risk-free bets.
If you are unfamiliar with the concept of Matched Betting, read one of our educational articles here.
The prospect of becoming a bookmaker on your own probably seems enticing, but concretely, what are the benefits of using a Betting Exchange?
Well, there are a few:
We will start with the obvious one; you get to be a bookie, and thus get more control of the bet. This means that you play on two of the outcomes of the game, rather than one. It is important to note that you should be wary about how you stake the bets, as this plays a vital role in turning a profit, especially in Matched Betting.
It is also a fairly easy system to take advantage of, and could be an important step for a bettor to take if maximising the profits is the goal, which it is in almost all cases. The logic might take some getting used to, and it is important to educate yourself before you begin. After this, any bettor should be able to identify greater odds than the ones at the bookmakers.
One of the most important positives of using a Betting Exchange, is the fact that you will never get limited or banned. For experienced sports bettors, this has been a problem for a while, and is only an increasing problem.
Soft bookmakers will limit or ban players that are profitable over a longer period of time, as they understand that they have a small chance at making a profit of them.
All soft bookies (European bookmakers) operate the same way, and with technology being improved continuously, this will be a problem in the future as well. Therefore, a Betting Exchange is an alternative for a long-term bettor, whether you use it to back or lay bets, or even through Matched Betting.
Lastly, when we compare a Betting Exchange to a bookmaker, we can clearly see a difference in the volume of bets that are playable. This means that you have a lesser number of alternative bets to play on if you choose to use a Betting Exchange, and in some cases you might struggle to find bets that are appealing enough for you to play them.
However, this might be a positive aspect of it, as bookmakers by definition seek to earn money from every bet. This means that the more bets they make available; the more bets they believe will generate a profit for them.
Thus, it might be safer to only play on the Home-Draw-Away options of a Betting Exchange, as there are less ulterior motives to be found.
As with any bookmaker, it is important for a sports bettor to find the Betting Exchange suitable for their needs and expectations. Whether the focus is on having the largest markets, most liquidity, lowest commissions, or best special offers and promotions, it is essential to find the right one, as they all have different strengths and weaknesses.
There are four main competitors in the market of Betting Exchanges:
Betfair is known to be the largest provider of Betting Exchanges, in addition to having the most liquidity of all exchanges. This means that there is a high probability that there are a lot of bets to be made, as there are always other users that are interested in making a bet against you.
However, Betfair has one of the higher commission rates, in addition to taxing the top percentages of players with an even higher commission.
Betdaq is known to have the second highest liquidity, in addition to not having the criticised premium commission on the top players, which is a definite positive. Betdaq are, however, lacking some of the special offers others exchanges have and has recently increase the commission slightly.
The obvious upside to this exchange is the low commission, with a rate of 1.5% if you accept an existing offer in the market, and only 0.75% if you create your own bet. The downside is that they have less liquidity than their competition and less markets to play on.
Smarkets offer a commission of only 2% flat, which is considerably lower than Betfair, and even Betdaq. However, it offers far less markets and has a lower liquidity than Betfair.
It becomes quite clear that the challengers to Betfair in general offer better commission-levels, although they lack in liquidity and in the number of markets and trades. This will give the average bettor different options at hand, and it all comes down to what attributes the individual bettor weighs the heaviest.
This article was only meant to be an introduction to the topic and to capture the essence of what a Betting Exchange is and what services it provides. We have covered it more thoroughly in this article, where we have added an example and explanation of a Betting Exchange.
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