What is a betting exchange and how do they work?

Betting exchanges are an increasingly popular and attractive alternative for many customers because they differ from the traditional online betting site offered by bookmakers.

Some bettors can shy away from betting exchanges and lay betting because the concept seems overly complex. 

However, they are a great way to get the best odds on sports and give yourself the best chance at winning. 

This guide will demystify betting exchanges, and explain the basics of how to use them to get the best value from your bets. 

How do betting exchanges work? 

The main difference between a betting exchange and a traditional bookmaker is that, with an exchange, you are betting directly against other players.

This means that there are two kinds of players involved in any bet made on an exchange. 

The first is the player who places the ‘back’ bet. Backing a bet on an exchange is the same as doing so with a traditional bookmaker, and simply involves selecting an outcome and deciding a stake. 

The second type of player is the crucial one: the player who ‘lays’ a bet. 

Simply put, laying a bet means betting against an outcome. 

To understand this better let’s take an example of a football match between Manchester United and Liverpool in which you believe that Liverpool will win. 

Rather than simply betting on Liverpool to win, you are able to lay a bet on Manchester United not to win. This bet is matched with another player on the exchange.

What is lay betting?

To explain how this way of betting works, let’s continue using our example of a football match where you think that Manchester United will not win. 

After finding the match on a betting exchange, you will see two colour-coded columns under each outcome to show decimal odds for backing and laying. 

These colours vary across the exchanges but on the Betfair Exchange, the blue column is for backing a bet and the pink column for laying a bet. 

Then, to lay a bet on Manchester United to lose the game, you would select the pink column for Manchester United 

You will then be invited to type in the stake. 

Imagine you are the bookmaker in this situation. This stake figure is the amount you are willing to accept as a bet and, in the event that the outcome is in your favour, it is the amount you will win. 

For our example, this means that if Liverpool win the match or it ends in a draw, you will win this stake. If you accepted a stake of £10, then you would win £10. 

However, in your lay betting role of acting as the bookmaker, you are liable to pay out winnings if Manchester United win the match. 

For our hypothetical match, we will say that the odds of your lay bet were 3.0, or 2/1 in fractional odds. 

As winning stakes on back bets are returned by the exchange, you would be responsible for paying out the back bettor’s £20 profit. 

This sum is known as your liability. 

When you are choosing what stake you are willing to accept, your liability will always be shown to you. You will only be allowed to accept stakes where the amount in your exchange account is able to cover your liability. 

While it is often possible to find people to back your lay bets at odds away from the main market value, it is not always a given. If you want to make sure your bet is backed then it is often best to just accept the market value, or not go too far from it when placing. 

This is the simplest way to lay a bet. The £20 liability you were willing to accept will win you £10 on any outcome other than a Manchester United victory. However, a victory for them would see you have to pay out £20. 

Finally, it is of vital importance to make sure that your lay bet has actually been backed by other players before the actual event starts. They are only valid if there have been other players who have backed your bet, either in whole or part.

Betting exchange vs bookmaker

The main reason for using an exchange over a bookmaker is the unique ability to lay bets with them. 

There are other major advantages too, such as the prices usually being better. This is because when a player bets against a bookmaker, the bookmaker’s profit margin is factored into the prices they offer. 

Many experienced players use these enhanced prices to guarantee profit from advanced betting techniques, such as laying off bets or acting as an arbitrageur. 

It is also easier to place large bets on an exchange, which traditional bookmakers can often shy away from accepting due to the liquidity of markets. A real bonus from the exchange sites.

However, there are some drawbacks to using a betting exchange over a bookmaker. 

There are far fewer markets on offer, and you are never guaranteed to find somebody to back your lay bet. 

You also cannot usually place accumulator bets, meaning bets with multiple legs will need to be made with a traditional sportsbook. 

How do betting exchanges make money?

The main way that betting exchanges make money is by taking a small commission on winnings. The exact amount varies between exchanges, but it is generally between 2% and 5%. 

This is much the same business model as a poker room taking a rake in exchange for providing a safe and secure platform for players. 

It is important to make sure you factor in this commission when deciding to use a betting exchange to back bets. The odds may be better, but it is important to make a like-for-like comparison to a traditional sportsbook to see which option would secure you the best net profits. 

What betting exchanges are there in the UK?

The market-leading betting exchange is the Betfair Exchange. It is the oldest exchange, having been formed in 2001 following a merger between two early online exchanges. Since then it has led the betting exchange market.

As Betfair is the biggest online betting exchange, it is often the most liquid market. This means that it is really easy to find many other players to bet against and place even larger bets. 

When we looked across a range of sites, we found that Betfair often had between two and five times the amount of money wagered on the exchange compared to their rivals. 

The only site which came close to meeting Betfair’s action was Smarkets, while Matchbook and Ladbrokes can offer smaller alternatives. 

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