Understanding Betting Exchanges

Betting exchanges serve as marketplaces where individuals can wager on the outcomes of various events. Yet, unlike traditional bookmakers, these platforms introduce a unique approach by allowing gamblers to make lay wagers. That is betting against an outcome. Hence, making a lay bet on Team A means you win it if the side loses or the match ends in a draw. So, this is the opposite of what happens at regular online sportsbooks, where bettors wager on something occurring. This feature empowers exchange users to trade bets, giving them opportunities to cut losses or secure profits.

These hubs appeared on the Web at the turn of the century and have changed how bettors can partake in gambling fun.

Betfair is likely the most famous exchange out there and the one that brought this gambling form to the line light. Over the years, multiple quality ones have emerged, and below, we analyze how they function and how you can use them to your benefit.

How Does an Exchange Work

In back betting, gamblers put down money on something happening online. They legally do this with a licensed operator. That means they are giving money to a regulated company that promises to pay them out if their bet wins. Note that when betting with digital coins over the Internet, a crypto bookie may not always have a regulator’s seal of approval. Now, back to lay wagering. In this practice, gamblers place bets against other bettors, not against a bookmaker. The exchange is just a third party facilitating this interaction. In essence, it is an intermediary providing a platform where users can back or lay a selection. Where they can bet on an outcome transpiring or wager against it.

Another chief difference between sportsbooks and exchanges is that the latter does not set the odds for any markets. So, it is best to think of exchanges as peer-to-peer wagering sites, ones boasting their ecosystems that aim to supply flexibility and transparency. All the odds compiling gets done by users by these hubs adopting a decentralized approach.

How Do Betting Exchanges Make Money?

The answer to this question is simple. Like sportsbooks feature a margin, called the vig, in their odds, betting exchanges charge a commission for offered services. Usually, they only take a fee from the winning bet. The precise sum will vary, but at most exchange premium sites, it will generally hover between 2% and 5%. The commission may not be fixed. It may also be calculated based on the cumulative net winnings across all users. That is a model that some exchanges have chosen to incorporate, believing it provides more sustainable revenues.

To use a card gambling analogy, this commission is akin to the rake that poker rooms charge.

It is noteworthy to highlight some exchange brands have looked to diversify their profit generation by supplying other extra-cost services. These can include all kinds of things, primarily data subscriptions, betting advice, analytics features, and more.

The History of Exchanges & Biggest Brands

According to the available data, the first three exchanges were Matchbook, Betfair, and Flutter in 2000. The latter two merged in 2001, and from that point on, Betfair has maintained its spot as the world’s leading sports wagering exchange. Horse racing was the initial sport to get put up on the original Betfair site in June 2000. It was the brainchild of Andrew Black, a computer science dropout who was an avid horse race gambler who worked as an IT security contractor.

By chance, he teamed up with Ed Wary, a finance professional at JP Morgan, and the pair launched Betfair as a sportsbook-stock market combo. The company then went on to sponsor Fulham FC, and it began expanding throughout Europe.

In 2010, Betfair made its way onto the London Stock Exchange, and five years later, it merged with Paddy Power. Traded as the Ladbrokes Exchange, BETDAQ has a sizeable part of the exchange market and is seen as the second-largest sector player. It was owned by Ladbrokes plc but sold to Exchange Platform Solutions Limited in 2021.

Other notable sphere names include Matchbook, Smarkets, and Ladbrokes plc.

Pros & Cons of Betting Exchanges

As a rule of thumb, exchanges offer better odds than those at traditional sportsbooks. That happens to be the case even with the commissions they impose because these are smaller than the vig/margin most bookies implement. Consequently, the peer-to-peer model allows them to be more competitive, boasting attractive odds. The flexibility of permitting users to set market coefficients/odds is something that many also find super exciting. That creates a fluid supply-demand market and allows for a more strategic approach to this pastime, a more personalized one.

Some of the Risks

Still, these websites/services are not perfect. They traditionally have underwhelming market coverage when stacked up against renowned and established bookies. Also, fewer niche markets and sports are represented at exchanges, which rarely feature incentives like bonuses for frequent and new users. Gamblers also may run into the risk of getting unmatched bets.

There is no guarantee that a party will appear willing to accept a bettor’s offered odds. When that happens, they get left with no bet. Moreover, given that they focus their liquidity on a low number of markets, they are not very suitable for parlays. Some accept accumulators, but these are limited and not comparable to those the majority of back bettors have gotten accustomed to using. On top of all this and volume dependency, most exchanges also do not have the robust features higher-end online sportsbooks offer, like live streaming and robust sets of real-time data continuously fed to side interface panels.

Match Betting & Nefarious Use

Match betting, also called double wagering, is a tactic gamblers use to profit from free bet promos. The basic concept here entails covering all possible outcomes through back-and-lay betting and on-the-house wagers to guarantee a profit regardless of the event outcome. It is a risk-free gambling method that benefits from bookmaker promotions. That is something some bookies frown upon.

Furthermore, many bookmakers, William Hill included, have agreed that because exchanges allow gamblers to bet on something not happening anonymously, that opens the door for corruption. But the industry’s main exchanges have signed agreements with governments stating they will alert them for suspicious wagering patterns and have agreed to cooperate with authorities regarding investigations when asked.