What Is A Betting Exchange and How Do They Work?
In this guide, I’ll be going through with you exactly what a betting exchange is and how it works. With a focus on how they’re used in matched betting to make betting completely risk free.
Bookmakers vs Betting Exchanges
There are typically two types of betting platforms; one is the traditional online bookmaker (e.g. William Hill and Betfred) and the other is an online betting exchange (e.g. Betfair and Smarkets). In this guide I will be focusing on detailing betting exchanges, but will quickly give a comparative overview of a bookmaker, to explain the differences.
Traditional online bookmakers work using a very simple method. They offer out odds on particular sporting outcomes to the public, which the public (you) can choose whether or not to bet on. If you choose to bet on the outcome and it wins, you receive whatever the promised winnings were from the bookmaker. If the outcome doesn’t win, the bookmaker keeps your initial bet amount.
For example; a bookmaker offers punters an opportunity to bet on the Real Madrid vs Man City football match, on their website. They offer odds of 1.50 for Real Madrid to win - that means that for every £1 that is placed on a Real Madrid win, the bookmaker will need to pay out £0.50 (if Real Madrid win).
The way that bookmakers make a profit is by offering unfavourable odds.
A betting exchange on the other hand is a marketplace for the public to bet between each other on sporting outcomes. This differs from a traditional bookmaker because an exchange also gives you the ability to act as the bookmaker yourself and take bets from others.
So Team Profit Jon can now become the bookmaker and accept bets on Real Madrid to win. By doing so if Real Madrid do win, Team Profit Jon has to pay out £15. If Real Madrid do not win, Team Profit Jon keeps the other person’s £10 bet. Therefore, by becoming the bookmaker, he is effectively betting that Real Madrid do not win (i.e. betting that they either lose or draw).
Betting exchanges make their money by charging users a commission for using the exchange platform. The majority of betting exchanges only charge a commission on winning bets, so they only make money if you win. The commission is a percentage of your winning’s returns (usually between 2% to 5%).
Because betting exchanges don’t profit via unfavourable odds it means that more often than not a betting exchange has better odds that are truer to the real value of a bet.
Betting Exchange Landscape
The concept of a betting exchange platform was imagined and created back in 2000 in the form of Betfair Exchange. Since then exchanges have come and gone but four remain strong for the purpose of betting. Below is a breakdown of the four main platforms to consider, some of which have moved into the sportsbook/casino space as well to further monetise their product.
Betfair are the pioneers of the betting exchange as we know it today. Founded back in 2000 it has spent over 17 years evolving into the biggest and best exchange product available today. They recently merged with the Irish sportsbetting company, Paddy Power in a deal worth £8billion and are currently part of the FTSE100.
Their default charge is 5% commission on all winnings - but this can be reduced via their loyalty programme. Betfair also offer an enhanced sign up offer of 0% commission for 30 days (up to £50), offer found here.
Smarkets were founded relatively quietly back in 2008, but boast huge growth in the past couple of years, namely down to the increased popularity in matched betting. With their slick design and modern tech focus it’s clear that they really mean business. And as I alluded to earlier, they are incredibly popular amongst matched betters, thanks to their competitive commission fee of just 2% on all winnings.
They also offer all new customers a £10 refund on their very first loss, offer found here.
Matchbook are a slightly smaller outfit to the previous two mentioned, but still a very popular choice in the matched betting community. Their commission rate is slightly more complicated as it’s between 0.5% and 1.5%, depending on your actions within the betting market (commission FAQs here), the commission is also charged on all bets, and not just charged on winnings like the others.
Matchbook currently offer new customers 0% commission up to £500, offer found here.
Now that we’ve learnt the difference between a bookmaker and a betting exchange and our exchange platform options, how do we use this when matched betting?
Betting Exchange Layout
I’ll now show you what a betting exchange looks like to get you familiar with it’s surroundings.
In this example I’ll be using images from the most popular betting exchange, Betfair.com. Each betting exchange’s style varies, but the premise of the layout remains consistent through them all.
The below image shows the match odds for the football match, Real Madrid vs Man City. If you’re unfamiliar with odds, check out our betting odds article after this video finishes.
The blue box shows the odds for Real Madrid to win. This is known as a back bet as you are backing a team to win.
The pink box shows the odds for Real Madrid to NOT win, which is the equivalent of becoming the bookmaker yourself. This is known as a lay bet.
When it comes to placing your £5 lay bet on Betfair, you will see that there is a liability amount. This is how much you’re set to lose if your lay bet loses, the calculation for liability is [lay stake] x [odds - 1]. So in the example above, liability = [£5] x [1.51 - 1] = [£5] x [0.5] = £2.55
Using Betting Exchanges When Matched Betting
To recap, bookmakers give welcome offers such as “bet £5 get £20 free”
So using the football match Real Madrid vs Man City as an example
We could bet £5 on Real Madrid to win in order to trigger our £20 free bet.
However, Real Madrid may not win meaning we lose our £5 bet.
This is where the betting exchange comes into play.
Using the exchange, by becoming the bookmaker we can place a £5 bet on Real Madrid not to win.
So overall, we will have placed a £5 bet on Real Madrid to win with the bookmaker and we will have placed a £5 bet on Real Madrid not to win using the Exchange. These bets then cancel each other out. To show this:
If Real Madrid win, we win our bookmaker bet but lose our exchange bet.
If the match is a draw or Man City win, we lose our bookmaker bet but win our exchange bet.
Which means no matter the outcome, no money is lost or won from the initial £5 bet.
But great news, we will have triggered the £20 free bet which we can then turn into £15 bankable profit!