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Betting Exchange: How does it work?

Gambling has seen many changes in the past couple of decades. One of the largest has been the introduction of the Betting Exchange. It changed the way in which some of us bet and gave gamblers a new foe.

For years, the battle has been between the gambler and the bookmaker. However, the introduction of a Betting Exchange by Betfair created something new in 2000. Instead, we now had a situation where it was gambler v gambler. It proved to be incredibly successful with millions joining up and in time other exchanges were formed. Let’s look at how all this works:

On a betting exchange, you can act in two different ways:

  • You can place a conventional type of bet, just as you would through a bookmaker. For example, you may want to bet on Novak Djokovic to win the US Open tennis tournament. This is known as ‘Back Betting.’ If Djokovic is successful, then your bet is won. However if he does not win the title, then your bet is lost.
  • You may also bet against a particular result happening. This is one of the major innovations that has been introduced by betting exchanges. Here’s how it works by looking at how a lay bet can be placed for a Premier League game between Tottenham Hotspur and Manchester City. Your opinion is that Tottenham are not going to win this match against a superior side. You therefore bet on them not to win the match and this is known as a ‘Lay Bet.’ Therefore, a Manchester City win or the game ending in a draw will suffice. If Tottenham win the match, then your bet is a losing one. 

An example of betting using a Betting Exchange

Let’s look at a game between Blackburn Rovers, who are the home side and the visitors Watford. Your view is that Watford are not going to win this match. They aren’t the best on the road and Blackburn have a decent home record. You therefore offer Watford on the Betfair betting exchange at odds of 7.0 (6/1 in fractional odds) for a total of €100. You now want another member of the site to take you on. That takes place and a site member who believes that Watford will win the match bets €100 on them at those odds of 7.0 (6/1) and the bet has been exchanged.

Now we can examine the possible results in this game and how they will affect this bet.

  • If the match ends in a Blackburn win or a draw, that’s good news for you and not such good news for the gambler who believed Watford were going to win the game.  They lose their stake which you now receive minus the commission that the betting exchange will charge – that’s how the bookmaker make their money.
  • If the match ends in a win for Watford, they win their bet and will receive their winnings. This will be €100 at 7.0 (6/1) which is €600 minus the commission charge.
ResultYouThe site member who matches your bet
Blackburn win the game or it ends in  draw aka Watford don’t win.Profit = 100 euros - commission chargeLoss = 100 euros
Watford win the game (odds of 7.0 (6/1)Loss = €100 at (7.0 (6/1) = €600

Profit = €100 at 7.0 (6/1)
= €600 minus commission charge

Betting exchanges offer many different types of bets and you can bet on a whole host of different sports.

Betting exchange: Pros and cons

The main advantage of a betting exchange is that it offers more attractive odds than bookmakers. Why is this? It’s  because this is a free market with odds in the control of the gamblers and this allows them to get better value odds. You will need another gambler on the site to match your bet. On other sites where it is the usual situation of gambler v bookmaker, the latter will ensure that they can make a profit. 

Thanks to a betting exchange, you can also bet against a particular event happening.

The main drawback to betting exchanges is that you can only bet if otherare willing to exchange a bet with you. This is not always the case, especially for sports which receive less media coverage. Another disadvantage is that the principle of betting and the placing of bets are more complicated than with a traditional bookmaker.

Another drawback to betting exchanges is that it is impossible to place combined bets.

How do I place a bet on a betting exchange?

Let's take the example of a Champions League clash between Lyon and PSV Eindhoven. You decide to go to Betfair (the largest of the betting exchanges).

Here we zoom in on how to place bets:

The figures in bold correspond to the odds and the numbers below them refer to the total amounts of money available at these odds.

The blue section on the left-hand side of the table corresponds to the purchase of bets (Back) and the purple colour on the right-hand side of the table corresponds to the sale of bets (Lay). We can see that it is possible to bet a total amount of €4.048 on a drawn match at odds of 3.6, and 6.535 euros at odds of 3.55. It is also possible to sell Lyon for €5.332 at odds of 1.83.

Imagine that you have decided to bet against Lyon. You must click on the purple box for Lyon (Lay). The bet placement window appears on the right-hand of your screen. You must then choose your stake. To simplify matters, let's say that you are staking 100 euros at the odds available for the sale of bets (1.83). If Lyon wins, you lose €83 euros ((1.83-1)*100). If Lyon draw or lose the game, you win €100.

You may also decide to buy at higher odds or sell at lower odds. To do this, you change the odds in the box containing 1.83. In this case, your bet will be confirmed once a punter has committed to your terms. If your odds are unrealistic, you may find that no other punters accept your bet.

The arrival of the Betting Exchange did produce something new for gamblers. A change is said to be as good as a rest and that has proved to be the case with this new form of betting. More exchanges have opened in recent years, but it is Betfair (read our review about this betting site) that will always be remembered as its originator.

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