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What Is A Betting Exchange & How Do They Work?

May 17, 2018 9:00 am Published by

Betting Exchanges ExplainedBetting exchanges are have become a staple of the UK betting market. For example Betfair, which is one of the market leaders, boasts revenue of around £400 million a year.

At the same time however, many of punters have still never even tried them. There is a degree of misunderstanding about the betting exchanges, with many people worried that they either don’t give as good odds as the traditional bookies, or otherwise are more complicated to understand and it is difficult to place bets.

This article will be aiming to put to bed some of these misconceptions. Hopefully then, once you are fully informed you can take the decision about whether you too would like to give the betting exchanges a try.

Betting Exchanges Explained: FAQ

Some people can have a lot of questions about betting exchanges. They can also have concerns if they are a legitimate way to bet, and also how they work.

This is probably because even the biggest exchanges are still nowhere near being the size, or having the name-brand recognition of the biggest betting companies. They can also seem a little intimidating from the outset and have different terms to a regular bookie.

This section then is designed to answer some of the biggest questions about betting exchanges:

How are exchanges different from regular bookmakers?
The biggest difference lies in the fact that you are betting against other punters, rather than against the bookie.

So a traditional betting company will create a market on an event, say a football match. They then give you odds based on what they think will happen – they also work in their overround percentages to make profits, but that is explained elsewhere!

A betting exchange however has no bookmaker, just a list of events. You see what other punters think will happen, and how much money they will bet on it – and if you disagree, you stake your own cash against their opinion.

What are back & lay bets?
When you bet with a traditional bookie, all you can do is a Back bet. i.e. if you think that Chelsea will win the FA Cup, then you place a stake on them – or Back them to win.

Betting exchanges are different in that they do offer Back style bets, but they also offer Lay bets. These are the opposite, and allow you to bet on something not happening.

So if, say, Chelsea are in the FA Cup semi finals and you think they ultimately won’t win the FA Cup, you can place a Lay bet which will be taken on by a punter who thinks they will win the cup in the end.

Will you get better odds?
So a traditional betting company will create a market on an event, say a football match. You think that West Ham will beat Man United. The bookie will offer you odds of 10 to 1, because that is the chance he thinks West Ham has of winning.

You bet a £1 and stand to win £11

Dave the United fan (from Surrey) is absolutely sure than Man U will beat West Ham. He is so sure that betting on United winning is the same as printing money, he is willing to offer you odds of 16.0 – effectively 15 to 1.

You stand to win £15 here. This is of course a very simply demonstration, and in the real world there are precious few Daves! However, the odds are going to be generally better because you can shop around and find hundreds of bets on an exchange instead of going with the one bet the bookie offers.

In my experience the odds at Betfair are quite a bit better than a regular bookmakers – click here to check them out yourself.
How do betting exchanges make money?
Very simply, they make money from commission on the winnings fro a bet – usually between 2% and 5%.

This means that more of the bet money is on the table to be won than with a traditional bookie, who are always looking to snip their odds down to cover paying out all winners and making their own profit on top.

Pro’s and Con’s: Exchanges vs Regular Bookmakers

Now you know a bit more about them, the next question of course is to ask if they are worth it!
So in this section, we will discuss the pro’s and con’s of betting exchanges when compared to traditional bookies.

Multiple bets aren’t generally possible

ConIf you like a cheeky accumulator of a weekend, then you will struggle to find many takers on bet exchanges. Basically, all the bets placed here need to appeal to the opposite beliefs of the other punter. So if you believe that West Ham will win a match, you need to find someone who believes they will lose the same match so you can exchange bets.

By stitching together lots of bets into an accumulator, you need to find someone who will take on all of them – and that can be tough.

Premium charges may come into play

ConIf you are very successful, then the betting exchanges may levy an additional Premium charge on your winnings.

Basically, to do this you need to be consistently making serious dough through the exchange, and it’s highly unlikely you will be that successful, so don’t worry.

Betfair, as an example, calculates that less than 0.5% of its customers are eligible for the Premium charge.

Won’t get account banned by exchanges

ProWhilst you may face a Premium charge if you are a very successful gambler, the exchanges will never close your account because of too much success!

Traditional betting companies have teams which monitor their users, and can shut down accounts if they see cheating, people taking advantage of odd discrepancies – or if they are just really good at gambling.

It’s true – almost every pro gambler has had an account abruptly closed with a betting company because they were making too much money.

The exchange however operates by charging a commission on winnings – it’s therefore in their best interest for you to win and win big.

More and diverse markets with regular bookies

ConFor the same reason that accumulators are hard to put together through the exchanges, so too will you find the selection of bets to be overall smaller.

For example, the bookies will offer a market on how many yellow cards in a football game. If you want the same bet through an exchange, you need to set up your guess, and offer it up for other punters. If no one is interested, you can’t place the bet.

Commission beats over-round

ProThe traditional bookies don’t outright charge a commission – but they still want a slice of the pie.

So you have to fight against both the odds they set for a market or outcome (which are not going to be generous) but you also have to fight against the so called “Over-round,” which is where the bookie artificially lowers the odds to make a better profit on your bet (read more: how do bookmakers make money?).

The exchanges are at least open in exactly how much commission they will take, and you can hunt around for multiple offerings on a market or event outcome. This open policy toward fees and the sheer amount of different odds means you will almost certainly find better value on the exchanges.

Price on exchange more likely to reflect true odds

ProFinally, the exchanges have no overround, so the odds they offer will generally better reflect the actual odds of an event.

If another punter thinks there is a 2 to 1 chance of an event happening, they will offer you 2 to 1. A bookie, because of the overround (also referred to as the “edge”) may agree that an event should be priced at 2 to 1.

But they won’t do that. Instead, they will offer slightly under 2 to 1 – as a decimal percentage, you see this as being odds of 2.0 on the exchange, but 1.90 at the bookie. This is how the bookies make profit, and depending on how they set up the market, they can actually be taking a hefty part of your stake and putting it straight into their pocket.

So there you go – hopefully, you at least better understand the betting exchange system, the pro’s and con’s of it, and if you are at all curious, the best thing to do is to give it a go…

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