Guide to Using Betting Exchanges

Betting Exchange Guide Contents
Exchange Intro | Why They Exist | The Best Exchanges | The Benefits | The Disadvantages | What the Numbers Mean

What are Betting Exchanges?

Betting exchanges are websites offering individuals the opportunity to back the outcome of an event or lay the outcome of an event.

In simple terms, laying the outcome of an event means you think the outcome is unlikely and you are therefore willing to let other individuals place their bets with you rather than with a traditional bookmaker. In effect you become the bookmaker. In reality there can be many other reasons why you would lay an outcome, even if you think it may actually win - reading the guides on this website will show when these more advanced techniques may be used.

A betting exchange enables two individuals to form either side of a traditional bet. This differs from traditional fixed odds bookmakers since you can normally only back your selection to win with a traditional bookmaker, they don't give you the opportunity to lay selections. Consequently, the introduction of the betting exchange has resulted in substantial numbers of customers leaving the traditional bookmaker in favour of the betting exchange where they can also lay their selections.

Some bookmakers have recently attempted to overcome this problem by letting punters back a selection to lose. However, whilst this may sound the same as laying a selection it is a little different. Here's an example.

A Real Betting Example

On 11th August 2004 at roughly 12:15pm we looked at the odds for Grand Marque, running in the 3.30 at Salisbury. A fixed odds bookmaker were quoting the following prices:
Back selection to win at odds of 2.5
Back selection to lose at odds of 1.5

At the same time you could get the following prices at Betfair, a betting exchange:
Back selection at odds of 2.86
Lay selection at 2.92

Odds Discrepancies

From the example above you can see there is a substantial difference in prices quoted by the fixed odds bookmaker and the betting exchange. You will often find the betting exchanges offer more generous prices. Usually this is because you don't need to worry about the bookmaker taking their cut, the betting exchane simply takes a commission (usually between 2-5%) on all winnings and that is it. Also, when individuals have a strong hunch that a selection will lose they may be willing to offer more generous odds than a traditional bookmaker.

You will also notice that there seems to be a large difference in the prices offered for backing to lose and laying. However, the prices are actually very similar, they are just calculated differently.

Lets say you back a selection to lose with a �50 bet at a traditional fixed odds bookmaker, your potential profit would be:
�50 x 1.5 = Return of �75
Return of �75 - Stake of �50 = �25 Profit

With this type of bet your maximum loss is limited to the amount of your stake, �50.

Betting exchanges work differently, if you were to lay the selection at odds of 2.92 for �50, you have basically let another punter place a bet with you. They have backed the selection at odds of 2.92 for �50. Using the same calculations displayed above, this would give a potential payout of:
�50 x 2.92 = �146
�50 of this is the punters stake so your liability is actually �146 - �50 = �96

If you would like to work out how to structure the bet to limit your loss to �50, as with the traditional bet, you can use the following calculations:
�50 / (2.92 - 1) = �26.04
Following this through, if you lay the selection at odds of 2.92 for �26.04 your maximum exposure will be:
�26.04 x 2.92 = �76.04
Subtract the punters stake of �26.04 from this and we are left with your liability of �50

To complete this example:
1) With the fixed odds bookmaker you can back a selection to lose for �50 to win a possible �25
2) With a betting exchange you can lay a horse, accepting a total of �26.04 in bets
3) In either example your maximum loss is �50
4) The betting exchange offers you an extra �1.04 in potential winnings for exactly same maximum loss

In conclusion, the betting exchange offered better value in this example. This will not necessarily be the case on all occassions and you should also learn how to calculate the returns after commissions taken by the betting exchange to get an accurate comparison, we will show you how to do this later.

Useful Links

The Jockey Club
Betfair
News - William Hill v Betfair
News - A BBC article on the fairness of exchanges

Click for list of bookmakers