What Are Betting Exchanges and How Do Betting Exchanges Work?
Do you know the difference between Sportsbooks, Bookmakers and Betting Exchanges? Read more to understand how betting exchanges work before you place a bet.
Published on 06 December 2017
Updated on 07 December 2017
Many people are switching from traditional bookmakers to betting exchanges. The growing popularity of betting exchanges is understandable, considering the advantages that they offer to bettors. In this material, you’ll learn about the basics of betting exchanges and what makes them work.
Basically, betting exchanges are online platforms that allow people to put bets or match those of others. Placing your bet means you’ll have to wait for another bettor to match your bet. Matching the bet of others involves betting on the individual or team opposing their pick.
This method of betting is like agreeing on a bet with unknown opponents. Note that betting exchanges are not bookmakers. Rather, they only serve as the platform where people can place and/or match bets.
The Limitations of Traditional Bookmakers
Traditional bookmakers earn money through gambling. Their main goal is to win more money (i.e. from losing bettors) than what they have to pay (i.e. to the people who win). Bookmakers, also known as “bookies”, attain their goal through excellent statistical skills (and their understanding of the information) and numerous betting markets. These people earn profits by spreading risks through large bet portfolios.
Fixed matches are also more common in traditional bookies than in betting exchanges. That’s because bookies allow anyone to place bets. Lastly, bookmakers must balance their books and retain a sufficient amount of cash.
How Betting Exchanges Work
Compared to bookies, betting exchanges have fewer operational problems. Instead of betting against others, exchanges earn money by collecting commissions from the winning bettors. Most betting exchanges have 5% as their commission rate. But some exchanges offer lower rates. A new betting exchange called Smarkets, for instance, charges 2% on all winning bets to grab a significant portion of the market.
There are also some betting exchanges that implement a loyalty-based structure for determining commission rates. The more “loyal” you are to an exchange, the lower the commission rates will be. You should also note that Betfair, the largest betting exchange in the world, implements a “premium charge” on the earnings of the most successful bettors. In some cases, this premium charge reaches up to 60%.
Betting exchanges can lay outcomes quickly and easily. In fact, this feature is one of the major advantages of exchanges over traditional bookmakers. Basically, “laying” an outcome means betting that it will not occur.
For instance, a match can have three potential results: a draw, away win, or home win. Here, laying a bet against the “draw” outcome means you are betting that the two other outcomes will occur. In terms of numbers, you have two out of three winning chances.
Lay bets become more effective as the total number of possible outcomes increase. Thus, you should use it for outcome-rich markets such as full-time/half-time score markets. The said type of market consists of nine potential outcomes. Laying a bet on one of these outcomes means you will win if any of the remaining outcomes occur.
Note that you will lose your wager if your chosen outcome happens.
Back prices involved in an exchange are higher than those of bookies to ensure competitiveness. It occurs because commission charges are applied on the winnings. Without low back prices, bettors wouldn’t choose exchanges over traditional bookmakers, particularly for ante post bets. The bettors themselves set the lay (i.e. sell) and back (i.e. buy) prices. Betting exchanges cannot set those numbers.
Important Note: An ante post bet is a bet that you’ll place prior to the event.
Arbitrage bettors and bet traders earn money from changes in prices before and/or during the event. Whenever an event that can potentially affect the game’s result occurs (e.g. a player scores, a referee awards a penalty, etc.), the prices in the betting exchange will be frozen. This process is called “suspending” or “freezing” the market. The market will go “live” once the permanence of the event is guaranteed. When that happens, the prices would have experienced drastic changes. The said changes allow people with winning positions to initiate profitable trades. People with bad positions, on the other hand, cannot make money by trading out. But they can use this strategy to minimize their losses.
In-play trading is possible while the game is being played. Bettors consider over time rounds as separate events. That means the bets made for the “regulation” won’t apply if extra time is needed to decide the winner of the event.
Unlike bookies, betting exchanges don’t allow people to place bets anonymously. Rather, each bettor is required to set up an account. This feature helps the exchanges in reducing the chances of fixed matches. The website administrators can easily pull up the information of questionable clients.
In general, betting exchanges are more interactive and exciting than traditional bookmakers. This is well and good. But exchanges can be highly addictive, considering all the features (e.g. live stream) that they offer.
Section: Sportsbook Bookmakers or Betting Exchanges