What is a Betting Exchange?
Some of you reading this guide might ask ‘what is a betting exchange?’ Whilst others of you will have heard of exchanges, but have no idea how they work. Well, that’s exactly what this guide will set out to explain.
Along with simplifying how betting exchanges work, we will also aim to tell you why you might want to use one, how to ensure that you are getting value odds and explain some important terminology relating specifically to betting exchanges.
What is a betting exchange? – How is it different from a bookmaker?
Firstly, to get yourself up to speed with the nuts and bolts of how betting exchanges work it’s well worth exploring some of our
online betting guides
which go into much more detail about very specific betting strategies that rely on betting exchanges.
Important:
One thing you need to remember is that when you bet with a bookmaker, you are placing a ‘back’ bet, whereas a bet placed on an exchange is always referred to as a ‘lay’ bet.
Bookmakers
When you want to place a bet with a bookmaker, you can only wager using the odds they happen to be offering for the outcome of a specific event and you are betting against the bookmaker. Those odds will include the bookmaker’s profit margin, which is variable, but can be as high as 20%. In essence, that means that you are not getting the best value for money.
Put simply, your bookie has a vested interest in the outcome of a sporting event in as much that it will always ensure it makes a profit, regardless of that outcome. For example, a football match between Spurs and Man City will have odds assigned for both teams to win. Regardless of your opinion about the match and even if you select the team that you do not want to win, you are placing a back bet.
Betting exchanges
By comparison, a betting exchange offers more competitive odds than you’ll find at a bookie, because its betting market is driven by supply and demand. When you place a bet on an exchange, you are betting against another individual, not the exchange itself. If you want exchange betting explained in very simple terms, then think of the exchange as a platform that facilitates peer-to-peer wagering for a small commission.
Any bets that you place on an exchange are always referred to as
lay bets. That is irrespective of your own opinion about the outcome of a sporting event. When we go into more detail about some betting strategies that rely on how betting exchanges work a little later in this guide, that will become clearer.
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How do betting exchanges work? – Finding value odds
The odds for an event should express the likelihood of it happening. So, if you were betting on something with a fifty-fifty chance, a coin flip for example, the odds should be evens, which is 1/1 fractional, or 2.0 shown as a decimal.
If the odds are lower than that, you will receive less of a payout than you should if you win the coin flip, indicating that the odds are of poor value. That is a much-simplified version, but the theory should bring home to you the importance of getting value to increase your chances of long-term success.
It is in that department that a betting exchange has benefits beyond that of a bookmaker. There are two factors which increase the likelihood that the odds you will find on a betting exchange are good value. Firstly, there’s no bookmaker profit margin built into the odds. Secondly, poor value wagers are unlikely to find a buyer on a betting exchange.
In most cases, a happy medium is reached between buyer and seller, if not, the bet will be cancelled. One way to double-check that the odds you see on an exchange are reasonable, is to use an odds comparison tool like Oddschecker, which compares the odds you can get from multiple bookmakers and betting exchanges in an easy-to-read format.
You will have to pay a commission to the betting exchange if your bet wins, but you will know in advance exactly what this will be, as the applicable commission charges are always shown before you place your bet. This is preferable to using a bookie, where you don’t know how much profit margin is built into their odds.
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Betting exchanges and strategies – some specific uses
There are a few very specific and complex betting strategies that rely entirely on the correct use of a betting exchange,
arbitrage betting
and matched betting being two examples. Here, we will give you just a brief overview of both of those.
Arbitrage betting
The underlying concept of arbitrage betting is finding discrepancies in a bookie’s odds and placing a back bet, which you would then cover with a lay bet on an exchange. Although that sounds a very simple concept, there is far more to it than first meets the eye and it comes with risks.
Bookies are very good at spotting arbs and quickly correcting them, so to get ahead of the game you would need to use some specialist arb finder software, which comes at a substantial cost. The software identifies qualifying bets, those where the back odds (at your bookie) are higher than the lay odds (on the betting exchange).
There are two main risk factors where arbing is concerned, the first is the human error factor. Arbing is very intense and unless it is carried out correctly, the cost of making a mistake, such as omitting to place a lay bet, can be very costly.
Secondly, bookmakers do not like arbers. If your betting patterns suggest any evidence that you are engaged with arbitrage betting, the most likely outcome is that your bets will be cancelled and your account will be closed without notice.
Matched betting
Matched betting is similar to arbing in that it relies on placing simultaneous back and lay bets. However, matched bettors only place their back bets using bookie bonuses or free bet offers. Again, specialist software must be used to identify those offers, which will eat into your potential profits.
Bookies are especially vigilant at spotting bettors whose main betting activity is using bonuses and promotions. Although you may read that this can be offset by placing ‘mug bets’ (small bets that are destined to lose) the reality is that you will inevitably end up having multiple accounts closed.
What is a betting exchange? And what it isn’t!
We have already explored most aspects of how a betting exchange works and it has a lot of similarities to spread betting. If that is making little sense at this stage, don’t worry, we have also prepared a
beginner’s guide to spread betting, which is certain to set you straight when asking the question “what is a betting exchange?”.
If you are used to working with fractional odds, which is quite likely if you are UK-based, then there is a bit more of a learning curve for you. Betting exchange odds and those used for spread betting are always represented in the decimal odds format. But don’t worry if you are not familiar with decimal odds, there are plenty of useful online odds format calculators available, which will quickly (and reliably) convert them for you.
Spread betting in a nutshell
Sports spread betting has many similarities to the principles of certain forms of trading. So, if you have any familiarity with trading forex or CFDs, you will grasp the concept immediately.
For those of you who are in the dark, in spread betting there are always two prices, a ‘bid’ price and an ‘ask’ price. The objective is for you to predict whether the price of the underlying market (the event outcome) will be lower than the bid price, or higher than the ask price.
Although theoretically speaking it is possible to win more money when spread betting than when betting with a bookie, there is also a much higher risk of losing more than your initial stake. You have to be absolutely spot-on with your predictions to avoid that scenario, so an advanced level of knowledge is needed before you try this out.
Further reading
The more you learn about betting tactics and strategies, the more chances you will have of becoming a successful bettor. Even if you are not too keen on some of the more complex betting strategies we have mentioned, there are some wagering tactics that you should always build into your strategy, accumulator betting is one of those.
Knowing
how to win accumulator bets, or at least how to use them to their best advantage, is one of those tactics and is a subject we recommend that you explore in detail.
Conclusion – now you know how betting exchanges work!
We hope that you have enjoyed reading our guide to exchange betting and that you now have a much better understanding of how betting exchanges work and the ways you can use them to your advantage.
As you will have seen, there are downsides to some of the betting strategies that make very specific use of betting exchanges, but there are also many ways to use them to your advantage, even for the casual punters amongst you.
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Betting Exchanges FAQ
📈 What is a betting exchange?
It is always a good thing to have a working knowledge of how betting exchanges work. Even if you are not intending to use a betting strategy that relies on using one, there may come a time when you will find the knowledge beneficial. Our guide to exchange betting will help you to quickly grasp the principles and set you on the right track.
💰 Can I make more money by using a betting exchange?
Don’t be taken in by the ‘get rich quick’ claims you may see online. As with any other type of gambling, exchange betting takes a level of understanding and a high level of sporting knowledge. Why not head over and read our guide to betting exchanges, which explores all of the pros and cons of this type of betting.
❓How do betting exchanges work?
There are several fundamental differences between placing a bet at your bookie and wagering on a betting exchange. Head over to betting.co.uk to read our informative and helpful guide to exchange betting, where we explore all of the pros and cons in detail.
