What is a Betting Exchange and How Do They Work?

In recent years, more and more bettors have taken an interest in betting exchanges. As you’ve seen this rise, you’re probably furiously searching the web, with 17 different tabs open, trying to learn all about betting exchanges and whether they’re worth your time. Don’t worry, you’re in the right place. Today, you’re going to what a betting exchange is, how they work, the pros and cons of using them, and so much more.

Betdaq Betting Exchange
Established Bookmaker Ladbrokes, also offer an exchange.

What’s a Betting Exchange?

For the longest time, betting on sports has meant using a bookmaker and backing an outcome to occur. Although many players don’t realise it, what they’re essentially doing is stepping onto the other side of the see-saw. While bettors back, it’s the bookmaker who lays. Now, betting exchanges are allowing bettors to control both sides. Therefore, you can back selections as normal or you can do the job of the bookmaker and lay (betting against an outcome).

At this point, we should note that the platform plays no role in the betting experience. For example, Betdaq doesn’t take on gamblers. Instead, they simply provide the website for players to back and lay; there is absolutely no risk for the platform itself. Since it doesn’t take on gamblers, it needs to take a small percentage in commission to make money instead.

How Do Betting Exchanges Work?

If you’re still scratching your head, allow us to explain. Just like eBay is a marketplace for people to buy and sell goods, Betfair and others are marketplaces for people to back and lay on sporting events. With the platform as the middleman, players can take the prices of others or set prices themselves. With no input from the exchange, they have no motivation for either side to win (either way, they get commission for the transaction).

With ‘lay’ betting, you’re choosing an outcome to LOSE – this is normally the job of the bookmaker. When you back Arsenal to win on a traditional platform, for example, the bookmaker is laying (in other words, they keep your money if Arsenal fail to win). Rather than a bookmaker taking this role, betting exchanges allow players to lay bets. For a selection to go ahead, there needs to be somebody backing and somebody laying. If nobody takes your price, nothing happens.

Let’s say that you’re watching a horse meeting and fancy a horse at 5/1; you go ahead and place £5 on the selection. For the bet to work, you need somebody on the other side risking £25 at 1/5. If somebody takes the lay, the bet is active, and you could win. If you lay, you’re hoping that any other horse wins.

Benefits of Choosing a Betting Exchange

  • Stronger Odds – Firstly, most players find better odds because you aren’t having to contend with the bookmaker building a profit margin into the numbers. Depending on the margin of the traditional bookmaker, you could find odds that are 3%, 5%, or even 7% better.
  • Laying Bets – As we’ve mentioned throughout the guide, betting exchanges offer something that just isn’t available with traditional bookmakers; an opportunity to lay bets. If you think a horse absolutely won’t win, the only way to do this with a traditional bookmaker is to back every other horse. With a betting exchange, you can lay on a horse and tell the world that this horse won’t win. Hopefully, somebody will take your price and disagree with you.
  • No Company Interference – The company will still take commission, but the odds aren’t affected through the provider’s need to make a profit. As long as you’re on a reliable exchange, bettors can play against each other without too much interference.
  • Hedge Bets – In some circumstances, players are able to hedge their bets to either minimise losses or secure profits. If a rugby team is a strong favourite, you’ll probably back them (maybe even using a +/- market). Suddenly, the team has seven players hit with food poisoning and you lay. If the odds are right, you may just win no matter what happens in the game itself.
  • Lack of Betting Exchanges – You might think that a lack of competition in this market is a bad thing, but it actually means that the players aren’t spread too thinly. If you had 20 different platforms, players would spread between them and it might be difficult to find a match for bets. With only a handful of strong candidates, you can be sure of a busy market. Betting exchanges rely on player numbers, so we recommend choosing a popular one with a great reputation.
  • Price Differentials – If you’re a member of more than one betting exchange, hedging your bets becomes an enticing prospect because of the difference in prices. Get the timing right and you can back and lay the same outcome and guarantee a profit, regardless of the event itself.

Cons of Choosing a Betting Exchange

  • Poor Liquidity – While popular markets are always moving, secondary markets are much dryer in terms of liquidity and opportunities. Especially on the smaller betting exchanges, you might struggle to get matches for your bets on the smaller sports and events. Even though a small betting exchange might offer an incredible welcome bonus, we recommend sticking with the populated platforms.
  • Commission – Depending on the exchange, commission can range from 2% to 5% and even beyond. When winning lays, it doesn’t take long before commission affects your margins (and motivation). Remember to consider commission in all calculations and place bets carefully.
  • Big Losses – The longer the odds for a lay bet, the higher the risk. In the past, plenty of people have learnt a harsh lesson about laying bets because the loss isn’t always limited to the stake. Again, the best tip is to be careful with money and start small to learn the ropes.
  • Easy to Learn, Hard to Master – When players first learn to hedge their bets, they’re overcome with visions of a rich future. However, they quickly see that it’s a difficult skill to master. Get the timing wrong, or even your calculations, and you lose money both on the backing and laying sides of the bet. In many cases, you’ll end up breaking even and getting nowhere.
  • You’re Not Alone – While reading this guide, it’s easy to get excited and start imagining yourself as the king or queen of hedging bets while earning money across several betting platforms. In reality, you’re not the only player who has had these dreams. These days, the price differential between platforms is minuscule. Even when you spot a misprice, there’s a danger of one side cancelling and getting left exposed.

Betting exchanges are amazing websites for fun and a new betting experience, but you always need to use them with caution. Just as with a traditional bookmaker, you won’t make millions overnight and there are hurdles to overcome. As long as you join a betting exchange with the right motivation, there’s no reason why you can’t have some fun backing and laying with others.

Is Exchange Betting Fair for Players?

We understand that some players have only ever used a traditional bookmaker for betting, so you might wonder how exchanges ensure a fair environment for all. When the practice was first introduced, many companies were opposed to the idea because it took control away from the bookmaker itself. Bookmakers had a monopoly on making markets, and now players had a chance to join in. Thankfully, Betfair and other betting exchanges have remained transparent with their practices.

With all betting exchanges, fairness for players is a key component of the service. Since we don’t know who is on the other end of our bets, many were concerned that people involved in the event itself would use the exchange. Now, exchanges work with sporting organisations to investigate contentious results and improve the information available to all.

Calculating Commission

Normally, a betting exchange will only charge commission for a winning bet. However, the way in which an exchange calculates commission can differ. As an example, we’re going to look at one of the biggest exchanges in Betfair.

With this platform, you will only pay commission through net profits. If you back a horse to win and it does, you’ll lose a small percentage of these winnings. On the face of it, both traditional bookmakers and exchanges make money from customers. As you’ve just seen, though, they collect it in different ways. While bookmakers build the profit into the odds, exchanges take money from winnings. For those who lose the bet, they don’t have to pay anything to the exchange.

How does Betfair calculate the commission? They multiply the Market Base Rate by your net profit. Depending on how much money you put into the exchange, a discount of some level is then applied. For all those who have played on Betfair, you’ll know that the Market Base Rate is normally set to 5%. Whenever a new customer joins the exchange, this is the percentage applied to all commission calculations. If you plan to trade frequently on the platform, you can expect this number to drop severely. In fact, many high rollers are now working with a 2% Market Base Rate (which means they keep more of their winnings!).

Betfair Exchange Points – To enjoy a better discount rate, you’ll need to accumulate Betfair Exchange Points. Ultimately, this comes with time and experience. The more time you spend trading on the website, the more points you earn. Betfair is open with the discount rates and it’s set between 0% and 36% in increments of two percentage points.

As an example, having between 11,000 and 12,999 points earns a 14% discount. Meanwhile, having between 26,000 and 28,999 points leads to a 28% discount. Based on the points in your account, you get a discount of up to 36%.

For every 10p you spend on commission, this earns one point. Fortunately, this works for implied commission too (in other words, the amount you would have paid if the bet was successful). To get a better discount rate, all you need to do is keep playing.

Making Money on a Betting Exchange – Beginner Tips

If you’re feeling a little confused and lost, we understand. When first learning about betting exchanges, it’s quite a bit of information to take on board. With this in mind, we’re finishing with some top tips for beginners!

  • Don’t be afraid to research the best strategies. This could be a good way to learn what works and what doesn’t. For instance, one popular option is to lay 0-0 for a football match. With 0-0 an unlikely score for two teams who are knocking goals in every week, you can bet against the scoreline. Elsewhere, some people lay several first goalscorer bets. Even if you lay against eight players, it almost doesn’t matter if one scores the first goal because the other seven don’t.
  • Be patient. If you’re just about to look at an exchange for the first time, don’t place any bets just yet. Instead, write down some odds you like. Then, come back a couple of hours later; you should notice how all the odds change. When reviewing an attractive proposition, watch it for a while because the odds will fluctuate.
  • Take some time to learn. Unfortunately, you won’t become a millionaire overnight with a betting exchange. Yet, giving the process some time and effort will allow you to understand and improve your chances of success. You’ll learn the types of odds that people choose, the best times to bet and lay, and some great strategies for your favourite sport.
  • Follow blogs and professionals. These days, the internet is full of bloggers and YouTubers who operate on the betting exchange. Why not take advantage of their hard work and learn from their content? By consuming content, you might just learn from the mistakes of others (and prevent yourself from having to go through the same gruelling process!).

See our reviews on Ladbrokes exchange and Betdaq.

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About the author

Carl Hughes

Editor

Carl Hughes

Editor

Carl Hughes is a leading expert on sports and casino betting. Carl began his career with a BSc in Sport, Exercise and Health Sciences from the University of Birmingham before working within the industry for some of the bigger names (GVC and Bet365) and has been praised as being "a leading sports betting commentator".