What Is A Betting Exchange? Person-to-Person Betting Explained

By

Victor Arum

Victor Arum Sports Betting Writer

Victor Arum is a seasoned sports betting writer who currently contributes to SportsTalkPhilly. He creates insightful guides and how-tos to help sports bettors formulate winning strategies and make informed wagers. Victor also reviews and rates sportsbooks, deeming them a SMASH or PASS. When not analysing sports betting patterns or writing, he's probably stretching at the gym or (re)watching a sitcom

All posts by Victor Arum

Sports Betting Writer

Updated 12 Aug 2024

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A betting exchange is a platform that allows individuals to bet against each other rather than against a bookmaker. When exchange betting, bettors can back (bet for) and lay (bet against) outcomes. This model allows for more flexible odds-setting and potentially better value despite a small commission on winning bets.

To explain further, our experts delve deeper into the betting exchange world, from its history to how to place bets with US sportsbooks or offshore betting sites.

Exchange Betting Explained

Exchange betting has transformed the traditional betting landscape by enabling individuals to bet against one another directly.

The concept originated in the early 2000s, pioneered by Betfair – the first major exchange betting platform.

Established in 2000 by Andrew Black and Edward Wray, Betfair revolutionized the industry by offering a person-to-person betting marketplace where users could both back (bet for) and lay (bet against) outcomes.

This departure from the conventional bookmaker model allowed for more dynamic odds-setting and empowered users to set their own bets.

Platforms facilitating exchange betting typically charge a commission on winning bets rather than setting the odds themselves.

Bettors Can Wager Against Themselves

Exchange betting platforms create a peer-to-peer betting environment where users can negotiate odds and bet directly against each other, adding an element of strategy and competition to traditional sports betting.

This model resembles making a bet with a friend at a pub, with the exchange serving as the impartial middleman responsible for managing bets and ensuring payouts to the correct parties.

The rise of exchange betting platforms like Betfair signaled a significant shift in the gambling industry. Instead of relying on bookmakers to set odds, bettors could now negotiate and agree on odds among themselves, creating a more transparent and competitive betting environment.

This democratization of betting attracted a large following, and soon, other exchange platforms emerged, such as Betdaq and Smarkets, further expanding the market.

These exchanges offer a wide range of markets beyond traditional sports, including politics, entertainment, and even financial markets.

Additionally, technological advances have made exchange betting more accessible through mobile apps and online platforms, further fuelling its popularity.

In summary, exchange betting has fundamentally transformed the gambling industry, offering bettors greater control, flexibility, and transparency.

How Does Exchange Betting Work?

Exchange betting operates on a peer-to-peer model, allowing users to both back (bet for) and lay (bet against) outcomes. This unique feature effectively enables users to act as bookmakers by offering odds on events.

Let’s delve into how exchange betting works using an example. Take the following soccer match between Chelsea and Manchester United:

User A believes that Chelsea will win, so they offer odds of 2.08 for Chelsea’s victory. This means that User A is willing to risk $10 to win $10.80 (plus their initial stake) if Chelsea wins.

On the other hand, User B disagrees and believes that Chelsea will not win. User B decides to lay Chelsea at odds of 2.10, effectively betting $10 against Chelsea winning.

Here’s where the exchange comes in as the middleman: User A’s offer of odds and User B’s acceptance of those odds are matched by the exchange, creating a bet.

Once the game concludes, the exchange calculates the outcome and settles the bet accordingly. If Chelsea wins, User B pays $10 to User A (plus the commission), and if Chelsea loses or draws, User A pays $10 to User B (minus the commission).

It’s essential to note that exchanges charge a commission on net winnings, which serves as their source of revenue. This commission is typically lower than the margins set by traditional bookmakers, offering better value to bettors.

How Does Back Betting Work On The Betting Exchanges?

Back betting on betting exchanges involves placing a wager on a particular outcome to occur, similar to how one would bet with a traditional bookmaker.

However, on exchanges, users have the opportunity to choose the odds at which they want to back their selection, or they can accept existing odds offered by other users.

Let’s take a closer look at how back betting works using an example screenshot from a betting exchange platform:

In the screenshot above, we see the available odds for backing a horse named “Jacks Lilly” to win a race. The odds displayed indicate the price at which users are willing to back the horse. For instance, at odds of 3.1, a user is offering to risk $10 to win $21 (plus their initial stake) if Jacks Lilly wins.

You may find a “weight of money” column, which shows the total amount of money available to be matched at each price. In this example, there is a small amount of money available at odds of 3.1, indicating weak support for Jacks Lilly to win at that price.

When placing a back bet, users must also consider the commission charged by the exchange on net winnings. This commission is deducted from any profits made.

Despite this commission, the platforms often provide better value compared to traditional bookmakers due to the lower margins.

How Does Lay Betting Work On The Betting Exchanges?

Lay betting involves betting against an outcome, effectively taking on the role of the bookmaker.

First, you choose the event and the outcome you want to bet against. For example, if you believe a certain horse won’t win a race, you’ll lay that horse.

You decide on the odds you’re willing to offer. This is displayed as a decimal or fractional price. For instance, if you lay a horse at odds of +300, it means you’re offering to pay out $3 for every $1 someone else bets if the horse loses.

You enter the amount you’re willing to risk, and if someone accepts your odds, your bet is matched.

For instance, let’s say you want to lay a bet on Manchester United not winning a match against Chelsea. Your bet will win if the result is either a Chelsea win or a draw.

Similar to back betting, the current lay odds will be automatically chosen. Yet, you have the option to adjust them according to your preference in anticipation that another user will back your chosen odds.

Betting Exchanges vs Traditional Bookmakers – What’s The Difference?

Betting exchanges and traditional bookmakers differ in several key aspects, offering distinct advantages and experiences for bettors. Here’s a breakdown of the main differences:

Price Availability

Exchange platforms often provide better odds compared to traditional bookmakers. This is because prices are set by the market rather than by the bookmaker itself. As a result, you can sometimes find more favorable odds on the exchanges, especially for less popular events.

Ability to Lay Bets

One of the most significant differences is the ability to lay bets on exchanges. While traditional sports betting apps allow you to back outcomes only, exchanges enable you to back and lay outcomes. This means you can bet on something not happening, effectively acting as the bookmaker.

Commission

Betting exchanges charge a commission on net winnings, whereas traditional bookmakers embed their profit margins into the odds. While commissions reduce your overall profits, they often compensate for this by offering better betting odds.

Being the Bookmaker

Exchanges allow you to take on the role of the bookmaker by laying bets. This means you can create your own markets and set your own odds, providing an opportunity to profit from other bettors’ predictions.

Price Precision and Market Dynamics

Due to their dynamic nature, exchanges offer more precise price movements. Prices can change rapidly based on market demand and supply, allowing savvy bettors to find value or exploit market inefficiencies.

Speed of Odds Movement

Odds on betting exchanges can move quickly, especially closer to the start of an event. This rapid movement reflects the real-time interaction between bettors adjusting their positions based on new information or market sentiment.

What Are The Pros and Cons Of Using Betting Exchanges?

Pros:

• Better Prices: Betting exchanges often offer better odds than traditional bookmakers, potentially providing higher returns on successful bets.
• Ability to Lay (Bet Against): Unlike traditional bookmakers, exchanges allow users to act as bookmakers and bet against outcomes, offering more flexibility in betting strategies.
• Easier to Hedge and Cash Out: Exchanges enable users to easily hedge their bets or cash out before an event concludes, providing greater control over potential profits and minimizing losses.
• No Betting Limits or Shutdowns: Betting exchanges typically don’t impose restrictions on successful bettors or limit winnings, allowing users to bet freely without fear of being shut down.
• Wide Range of Markets: Exchanges offer a diverse range of betting markets, including niche sports and events, providing more opportunities for betting.

Cons:

• Commission Charges: Exchanges charge commissions on net winnings, reducing overall profits compared to traditional bookmakers.
• Bigger Liabilities: When laying bets, users face potentially larger liabilities if the backed outcome occurs, requiring sufficient funds to cover potential losses.
• Market Liquidity: Market liquidity can vary, particularly for less popular events, which may result in less favorable odds and limited betting opportunities.
• Learning Curve: Using these platforms requires understanding how they work and the mechanics of lay betting, which can be intimidating for beginners.
• Price Fluctuations: Prices on exchanges can fluctuate rapidly, especially when betting in-play, making it challenging to secure desired odds at the right moment.

Overall, while these platforms offer unique advantages such as better prices and the ability to lay bets, users should be aware of commission charges, potential liabilities, and market dynamics before engaging in exchange betting.

Use Betting Exchanges To Trade Sporting Events

Trading on betting exchanges involves taking advantage of price movements in sporting events to make a profit.

Just like in financial markets, prices fluctuate based on various factors, such as team performance, news, and betting patterns. Traders aim to predict these movements and profit from them.

Traders can back (bet for) or lay (bet against) outcomes on the exchange. By backing at a higher price and laying at a lower price, traders can lock in a profit regardless of the outcome.

Traders can hedge their bets to minimize risk and secure a guaranteed profit. This involves placing opposing bets to offset potential losses. For example, if a trader has backed a team and the odds move in their favor, they can lay off part of their bet to guarantee a profit, a strategy known as “greening up.”

Advanced trading software like Bet Angel provides traders with a platform to analyze market data, place bets, and automate trading strategies. Traders can connect to the betting exchanges via APIs, allowing for real-time data access and execution of trades.

Trading on betting exchanges is similar to trading stocks and shares, but instead of buying and selling financial assets, traders are trading on the outcomes of sporting events.

What Does Greening Up Mean On The Betting Exchanges?

“Greening up” is a term used in betting exchanges to describe the process of securing a profit on a bet regardless of the outcome of the event. This is achieved by strategically placing additional bets to offset potential losses and ensure a positive return.

Let’s say a trader backs Manchester United to win a soccer match at odds of 3.75 with a $100 stake.

As the event progresses, the odds may fluctuate based on various factors such as game dynamics, team performance, or market sentiment, as in live betting. In this case, let’s say the odds of Manchester United winning decrease to 3.0.

To green up, the trader places a $100 lay bet on Manchester United at the current lower odds of 3.0. By doing so, they are effectively hedging their initial bet and ensuring a profit regardless of the outcome with the soccer betting sites.

Regardless of whether Manchester United wins or loses the match, the trader is guaranteed a profit due to the greened-up position.

• If Manchester United wins: The back bet wins, but the lay bet loses, resulting in a net profit
• If Manchester United loses or draws: The back bet loses, but the lay bet wins, again resulting in a net profit

Is Using Betting Exchanges Legal?

Yes, using betting exchanges is legal in many jurisdictions where online gambling is permitted.

These platforms must obtain licenses from regulatory bodies to legally operate in certain jurisdictions.

These bodies impose strict regulations to ensure fair play, protect consumers, prevent money laundering, and promote responsible gambling practices. Non-compliance can result in penalties, fines, or revocation of licenses.

To ensure that users are of legal age to gamble and are located in jurisdictions where online gambling is legal, betting exchanges enforce strict age and location verification procedures. This helps prevent underage gambling and unauthorized access to the platform.

To prevent money laundering and other illicit activities, betting exchanges implement robust anti-money laundering (AML) measures, including customer due diligence, transaction monitoring, and reporting of suspicious activities to relevant authorities.

They prioritize consumer protection by providing tools and resources for responsible gambling. Such as self-exclusion options, deposit limits, and access to support services for problem gambling.

How Do Betting Exchanges Make Their Money?

Betting exchanges primarily make their money through commission charges on winning bets. Here’s a more detailed explanation:

• Commission on Winnings: When a bettor places a winning bet on a betting exchange, the exchange deducts a small percentage of the winnings as commission. This commission charge is the primary source of revenue for the exchange. The commission rate typically ranges from 2% to 5% of net winnings, depending on the exchange and the type of market.
• Net Winnings: Betting exchanges calculate commission charges based on net winnings, which is the total amount won minus the total amount lost. This means that if a bettor has a net loss over a certain period, no commission is charged.
• No Spread Betting: Unlike traditional bookmakers, betting exchanges do not make money through the spread (the difference between the odds offered to back and lay bets). Instead, exchanges facilitate peer-to-peer betting, where users set their own odds and match each other’s bets.
• Additional Revenue Streams: In addition to commission charges, some betting exchanges may generate revenue through other sources, such as premium features, subscription services, advertising, and partnerships with third-party providers
• Volume-Based Revenue: Higher trading volumes on the exchange translate to increased revenue through commission charges. Therefore, exchanges may incentivize higher trading activity by offering loyalty programs, bonuses, or promotional offers to attract more users and increase betting activity.

How Much Commission Do Betting Exchanges Take?

The commission rates taken by betting exchanges can vary depending on the platform and the specific terms and conditions.

While the standard commission rates for betting exchanges generally range from 2% to 5%, users may also have the opportunity to qualify for reduced rates through loyalty programs, volume-based incentives, or promotional offers.

It’s essential for bettors to review the commission structure and any available discounts or deals when choosing a betting exchange.

What Are The Best Betting Exchanges To Use?

Here are some of the main betting exchanges, along with a brief overview:

Betfair

Betfair is one of the largest and most established betting exchanges globally. It offers a wide range of markets, competitive odds, and advanced trading features. With its extensive user base, Betfair provides liquidity across various sports and events.

Smarkets

Smarkets is known for its user-friendly interface, low commission rates, and reliable platform. It offers a diverse range of markets and is popular among both casual bettors and experienced traders.

Betdaq

Betdaq is another prominent betting exchange, offering competitive odds and a variety of markets. It provides innovative features such as the Betdaq+ premium service, which offers enhanced odds and exclusive promotions.

Matchbook

Matchbook specializes in sports trading and offers low commission rates, making it appealing to serious bettors and traders. It provides liquidity in major sports markets and focuses on offering a professional trading experience.

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