November 5

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What are betting exchanges?

By Matt Finnigan

November 5, 2022

Betfair, betting exchanges, Smarkets

What are betting exchanges? Essentially, betting exchange is a platform that allows you to place bets against other bettors, rather than against the bookmaker. This means that you can both back and lay bets, essentially acting as a bookie. 

Betting exchanges offer several advantages over a traditional sportsbook. For one, in comparison, the odds are often more favorable since there isn't a built-in margin. Additionally, you have more control over every bet on the exchange as the price increments are much lower than what the bookmakers offer so you will make more profit if you decide to cash out your bet.

If you're looking for a new way to bet on sports, then betting exchanges are worth exploring. In this article, we'll explain everything you need to know about betting exchanges!

How do betting exchanges work?

When you place a bet with a bookmaker, you are effectively agreeing to accept their odds. Fixed odds bookmakers make their money by setting the odds in their favour, so they will always try to offer you slightly worse odds than you could get elsewhere.

Betting exchanges work differently. They allow customers to set their odds, which means you can get better value for your money. It also allows you to bet against other punters, rather than against the bookmaker. This can be a more risky option, but it can also offer better value if you know what you're doing.

The main benefit of using a betting exchange is that you can get better value for your money. However, it's important to remember that you can also lose money if you're not careful. It's always a good idea to research the markets carefully before placing any bets.

The benefits of betting exchanges

There are several benefits of betting exchanges, which is why they have become so popular in recent years. Some of the key benefits include:

- Best odds: since betting exchanges don't have a built-in margin, you can often get better odds than you would with a bookmaker.

- Better control: betting exchanges give you more control over your risk in the market and you can execute more complicated ways to manage your risk in an exchange market.

- Larger Stakes: If you want to place a £1000 bet on an outcome of an event you can do so and you will not get your account limited if you are successful with your bets

The risks of betting exchanges

- Market Liquidity: Outside of the big events liquidity in the markets can be poor, meaning that you run the risk of not getting your bet matched in the first place, or not being able to manage the risk effectively.

- Fewer Markets: There are so many markets offered these days by fixed odds bookmakers on every event, you don't get the market depth with a betting exchange.

- Market Volatility: certainly with in-play markets or the horse racing markets, the prices can move very quickly and if you use the betting exchange for trading you can quickly be in heavy losing positions if you get on the wrong side of the price swings.

The History of the betting exchange

Betfair, which was founded by Andrew Black and Edward Wray was launched in June 2000 and the founders believed they had found a way to disrupt the space that traditional bookmakers had been offering for decades.

Online sports betting was starting to gain in popularity due to the Internet, but you could argue that the theme for the launch party was a game-changer for the founders

They ran a marketing campaign dressed as Gangsters with the slogan 'Death of the Bookmaker' and this was so successful it got everybody in the betting industry talking about the new player in the space.

Despite the early success of Betfair, liquidity in the markets was poor as there was another betting exchange called Flutter that was eating into any potential growth Betfair needed to get a foothold against the bookmakers.

Betfair bought Flutter in 2001 and by early 2002 Betfair was the only betting exchange as Flutter was closed for good.

Since then, betting exchanges have become increasingly popular, with several other options available, such as Smarkets and Betdaq.

How does a betting exchange make money?

Betfair exchange has a commission rate and this will be charged on all winning bets, it should be remembered that you don't pay commission on losing bets. So if you have a winning bet, then Betfair will take a percentage cut of your profits.

The basic plan on Betfair is a 2% commission

How much commission do I pay?

This is how it is calculated: Commission = Net Winnings x Market Base Rate x (100%-Discount Rate).

For example, if you bet £100 on a horse at odds of 2.0, and the horse wins, you will win £100. The betting exchange will take a commission of 2%, so you will receive £98.00 in total and the exchange £2.00.

Smarkets & Betdaq offer 2% flat commissions on all winning bets, so you should remember it will cost you 2 pence for every £1 that you win.

If you're a member of Odds Monkey (Matched Betting Software) you can get 0 commission with Smarkets and that is a great offer for anybody serious about making money long term.

Popular betting exchanges in the UK

There are several popular betting exchanges in the UK, including Betfair and Smarkets. These exchanges offer a wide range of betting markets, as well as a user-friendly interface and easy-to-use menus. They also offer better odds than traditional bookmakers, making them a popular choice for punters.

Trading on Betting exchanges

One of the advantages of betting exchanges is that they offer a way to trade on sports markets. This means that you can place bets not only on the outcome of an event but also on the betting market itself.

For example, let's say that you think the market for a particular football match is going to be very volatile. You could place a bet on the market itself, rather than on the outcome of the match. If the market moves in your favour, you could make a profit. However, if it moves against you, you could lose money.

Trading on betting exchanges can be a great way to make money from sports betting. However, it's important to remember that there is also a risk of losing money. It's always a good idea to research the markets carefully before placing any bets.

Matt Finnigan

About the author

A full time professional sports trader since 2002 and I expanded my investment portfolio during the 2020 pandemic to include crytpocurrency and forex trading when the sporting world ground to a halt.

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