Betting Exchanges

Betting Exchanges

A betting exchange is a mechanism by which individuals on opposing sides of a betting proposition can be brought together to form a wager against one another. As such, a betting exchange differs from a traditional bookmaker in that users may lay selections – that is bet against them, effectively acting as the bookmaker – as well as back them. This, and superior odds, are the main advantages of betting exchanges, although there are downsides too, of which more later.

The first betting exchange was founded in the late 1990s and the phrase “peer to peer” betting was coined. Betfair, by far and away the market leader, was created in 1999 and now has around one million registered, active users in all corners of the globe, handling more transactions every day than all the European stock exchanges combined, the vast majority matched in seconds with 100 per cent efficiency. There are other betting exchanges, including Betdaq and Matchbook, but none have been able to truly challenge the size, scope and liquidity of Betfair.

Liquidity is a key aspect of any betting exchange and refers to the amount of money available to either back or lay a given selection. A bookmaker will always have odds for any given selection but an exchange relies on there being two individuals (in reality lots of bookmakers and organisations also use betting exchanges) prepared to take up either side of the wager. In simple terms, I cannot bet on Manchester United to win if nobody else will bet on them not to win, that is to say, lay them.

Betting exchanges make their money by taking a small percentage of the winners profit or sometimes of each bet, depending on the exchange, and this is usually between 2% and 5%. This enables an exchange to offer, more often than not, odds far superior to a bookmaker who usually has a profit margin factored into the odds of closer to 15%. On outsiders in particular you will often find odds at betting exchanges, even allowing for commission, to be far higher than at any bookmaker.

Backing v Laying

Back vs LayOne of the major benefits of using a betting exchange and perhaps its major selling point for many is that it allows punters to lay bets as well as back them. But what does this actually mean? A bet is just a bet, isn’t it?

Just as a coin has two sides, so too does a bet. The person who places the bet is the backer and the person who takes the bet is the layer. Traditionally bookies have been the only people able to lay bets but with the advent of exchanges it is now possible for normal punters to effectively become the bookmaker and lay bets, if they so choose.

There are many reasons why you might want to do this and so laying bets has a number of different applications. When you lay a selection, in essence you are betting on it not to win. You might not be too confident about which horse will win a race, for example, but you might be very confident that one (or more) in particular will not be victorious. In this situation using a betting exchange to lay the nag you don’t fancy in the slightest is perfect.

In the past you might have been able to find a bookie offering a “not to win” market, though this is not widely available. Alternatively if you were prepared to put the time and effort in you could make back bets (normal bets) on all the other horses in the race, adjusting the stake according to the odds so that no matter which of the rest won, your take home would be roughly the same. Of course, that is far too much maths and far too much like hard work for many people and so simply laying the horse you don’t think will win is a very simple solution.

When You Lay, Note Liability Not Stake

Liability at Betting Exchange

Perhaps the most important thing to understand about laying a selection, be it a horse, a football team, a boxer or anything else, is that your risk is not the amount you put up as a stake. Remember, you are acting as the bookie now, even if it is done through an exchange, and a bookmaker has to pay out winning bets in accordance with the odds they were made at.

If the odds are exactly evens then the stake and liability will be the same. So let’s say you think the favourite in the big race can be taken on but you are not sure which of the field will have the beating of him. If you lay the favourite at even money for £100, that means you have accepted someone else’s £100 bet (in reality it is probably the money of several punters rather than just one as the exchange matches backers and layers behind the scenes).

If the horse wins, you must pay them at evens, so £100. If the favourite goes down, as you predicted, then you keep their £100 stake (less commission paid to the exchange for facilitating the whole thing). So far this sounds very much like normal betting, with £100 at evens risking £100 for the chance to in £100. However, the picture would be very different if the odds were, say, 10/1.

Let’s say you lay a 10/1 outsider, believing the true odds to be more like 50/1 and reflecting the fact that this horse has very little chance of winning the race. You enter £100 into the exchange as your stake but will see that your liability on this bet is a sizeable £1,000. This is because, as before, you must have the funds to cover paying out the backer’s £100 at 10/1. If the horse upsets the odds and wins, you will lose £1,000, whereas if it fails to win, even if that means finishing second by a neck, you will, as before, win the punter’s £100 less commission.

This means that when you lay bets your loss can be far greater than your “stake”, if we understand stake in the traditional sense. That is why it may be wiser to refer to your stake when laying as your liability, as it is this that you stand to lose if your bet goes against you.

Picture Reversed at Odds Below Evens

Short Odds at Betting Exchange and LiabilityIf you lay a selection at a price that is odds on, this picture is reversed somewhat.

Exchanges, as we shall discuss, use decimal odds, rather than fractional.

This means that evens is 2.00 and any price from 2.01 upwards is odds against, whilst 1.99 and below is odds on.

When you lay a bet at odds on, be it a favourite in a race or anything else, your liability will be lower than the stake you enter into the exchange.

The reasoning for this is clear enough, in that if you accept a £10 bet at odds of 1.50 (which is 2/1 on in fractional pricing), your risk is only £5 if the pick wins, whereas you still stand to gain £10 if it loses.

How To Lay A Bet

Exchange horse Racing

If you are totally new to exchanges then the appearance of the markets and odds can be confusing at first. This is because for any given bet you see at least two sets of odds and often six (you may only see two if you are using an app but the full website will usually have six as standard).

There is an example from a horse race above. This is Betfair’s way of displaying things, and while other exchanges might have chosen different colours or other minor changes, the foundation of the layout will remain the same.

The odds on the left are usually the back prices and will typically be shown in blue, with the odds on the right, in pink, the prices for laying that selection. The two in the middle are the currently available prices where a bet, back or lay, is likely to be matched (essentially confirmed) straight away. To either side of that are two back prices on the left and two lay ones on the right where people are “queuing” for better odds.

So below we have a crude illustration of how the match odds for the Manchester derby might look which we can use to demonstrate. If you don’t think City represent good value to back at odds of just under 6/4 (which would be 2.50, rather than 2.46), but aren’t 100% sure whether Man United will win or draw, you might want to lay City.

Outcome Back Lay Back Lay Back Lay
Man Utd 3.20

(£1,002)

3.25

(£12,908)

3.30

(£23,567)

3.40

(£19,778)

3.45

(£1,224)

3.50

(£600)

Man City 2.42

(£3,000)

2.44

(£81,009)

2.46

(£29,001)

2.48

(£40,076)

2.50

(£699)

2.50

(£2,505)

Draw 3.25

(£62)

3.30

(£12,000)

3.35

(£17,001)

3.40

(£200)

3.45

(£700)

3.50

(£8,009)

To do so you would just click on the box where it says 2.48. The sum underneath, in this case £40,076, shows the amount of money that is available at the given prices. We will look at this in more detail below when we consider liquidity within markets. Once you click the 2.48 box that selection will be added to your slip.

Here you can choose how much you want to lay. The exact way this works varies from site to site, with most offering different settings to alter exactly how the process works. The standard method is that alongside the lay odds you will see a box marked “Backer’s Stake”, or similar. So if you want to lay City for £100 you would enter £100 there and most exchanges would then tell you what liability this generated – in other words what you stand to lose should The Citizens deliver the goods.

This figure, based on odds of 2.48, would be £148. So if City win, you would lose that amount and if they do not win you would get £100, less the commission (an issue we will look at below). The process is really very simple once you have the basics… which hopefully you do now.

Why Bother Laying a Bet?

Lay Betting

There are many reasons that people use exchanges to lay, rather than back. The most obvious, as we have already discussed, is that quite simply you believe a team, horse or participant will not win. It is easy to believe that laying is a quick route to success (and the acquisition of that yacht you’ve been eyeing up) but sadly it is not that simple. Bookies win, overall, by laying but they typically lay at lower odds than you would be able to on an exchange (again, see below for more info on how the odds compare). In addition, they do not have to pay commission.

On top of that they have the various psychological and business factors in their favour that make it easier for them to make money than it would be for a normal punter laying bets. Firstly, they can effectively pick and choose who they take bets from. They can weed out the successful punters from the rest to leave themselves with a clientele that helps them make money, which is not a possibility using the anonymity of the exchange. In addition, some punters find it hard to quit whilst they are ahead, so often winnings are simply returned back to the bookie sooner or later. Again, the mechanics of an exchange mean this is not possible for the average user.

The point that we really want to make here is this: do not think laying at the exchange is any sort of get-rich-quick scheme. There are various “systems” out there that may purport to show you how you can cash in. Some even have the audacity to charge for their “wisdom”. However, there is no simple system that works that does not rely on a punter’s ability to spot when a selection is either under- or over-priced, so do not fall for any such schemes.

Whilst blindly laying favourites or outsiders or whatever else some snake-oil scheme advises will not work, there are other reasons why you might choose to lay. We explained above that you might feel that City were too short, so laying them is a good option. Using a traditional bookie you could back United/Draw double chance, or United +0.5 but there are other markets and sports where it would be far more complex to use a “normal” bookie to cover the various other options.

Beyond the simplistic notion of betting on a team or player not to win, the following are further reasons why you might use an exchange to lay a bet:

  • To hedge a successful bet – if you have placed a bet with a bookie on, perhaps, Man City to win the league, and they are eight points clear at the top in December, you could hedge the bet at the exchange. By laying City one of your bets would go your way, and if you were no longer 100% sure they would go on to win the title this might be an option.
  • Or cut your losses – on the other hand, if a bet is going badly, you might decide to lay it to reduce your losses should it fail to win.
  • Matched betting – laying bets is one of the key aspects of a betting technique called matched betting. This allows you to extract most of the value of a bookmaker’s free bet with the only risk being human error on your part.
  • Arbitrage betting – arbitrage, commonly known as arbing, is another advanced betting technique that allows you to take advantage of differences in odds. If you can back something at a bookmaker and then lay the same selection at lower odds at an exchange you can bag the bit in the middle.
  • Trading – trading is yet another technique that some use and involves backing a selection that you think is likely to see its odds fall. This way you can then lay it in the future at shorter odds and cash in. This might be a horse that you see heavily tipped in the newspapers, a bet that you just believe the market hasn’t cottoned onto yet, or any other selection that for a range of reasons you believe will get backed in to a shorter price.

What About Backing?

Place BetSo far we have only talked about laying bets but you can, of course, make normal back bets with an exchange too. The process of doing this is very similar to how you would go about laying a selection but instead of clicking the box on the right, probably in pink, you tick the back box on the left (normally blue).

In addition, of course, when you are backing at the exchange, things are just how they would be at a fixed odds bookmaker in terms of your stake being the amount you stand to lose, and your potential win being the stake multiplied by the odds. As already mentioned, these odds will be decimal not fractional and should you win there will be a commission to pay.

Many people use one of the major exchanges as their number one betting option because, as we shall discuss, by and large, the exchanges do have better odds. In addition, if you intend to back-to-lay, effectively trading out of a position when the odds shorten, doing both sides of the wager at an exchange minimises the commission you will have to pay. Exchanges are also really good for in-play betting, especially on major events where liquidity is not an issue.

Understanding Liquidity

Liquidity can be a major issue at betting exchanges and can be one reason some people prefer not to use them. Let us return to the odds “grid” we showed for the Manchester derby match odds:

Outcome Back Lay Back Lay Back Lay
Man Utd 3.20

(£1,002)

3.25

(£12,908)

3.30

(£23,567)

3.40

(£19,778)

3.45

(£1,224)

3.50

(£600)

Man City 2.42

(£3,000)

2.44

(£81,009)

2.46

(£29,001)

2.48

(£40,076)

2.50

(£699)

2.50

(£2,505)

Draw 3.25

(£62)

3.30

(£12,000)

3.35

(£17,001)

3.40

(£200)

3.45

(£700)

3.50

(£8,009)

For a huge game like this and in the most popular market, liquidity is unlikely to be an issue. In fact, for high rollers, they may find it easier to place a large bet at an exchange than at a bookmaker. A betting whale could make a wager of £25,000 on City to win at the click of their mouse, as we can see there is over £29,000 available to back at the best current odds, 2.46. At a bookie, such a bet may need referring and/or may not be accepted.

One great thing about an exchange is that you can see exactly what money is available and at what odds. You know what bets you should be able to place and what is not currently possible, whereas with many bookmakers you would only find out if you try and actually place the bet.

However, at an exchange you can only place your bet at all where there is someone prepared to lay it (or to back it if you are looking to lay). The availability of cash on the other side of the bet is what is referred to as liquidity and without it you cannot place your wager, or where you can the only odds offered may be very poor.

Poor Liquidity

This latter point is because where there is very little money in the market, it is not fully formed. Some of the people offering odds, whether to back or lay, may just be chancing their arm trying to get their bet matched at odds that are far too short (if they are trying to lay) or too long (if they are attempting to back the selection).

Liquidity at the exchanges is generally low under the following circumstances:

  1. The event is a long way in the future – most people place bets close to the event so even just a few days (or for smaller contests, hours) before it starts, there may not be much money available.
  2. Less popular betting sports – as a general rule the most money, certainly in the UK, is wagered on football and horse racing. There will be less liquidity on more niche sports such as winter sports or netball.
  3. Smaller leagues – even within football there is a huge variation in the liquidity. For the Champions League, the Premier League, La Liga football and similar you can expect it to be good. Youth football in Honduras, however, not so much!
  4. Less popular markets – even a big, important football match may not have huge amounts of liquidity for the less common markets. If you like betting on things such as corners, player specials and really any market outside the biggest 10 or so, you may have issues.

As an illustration of this, whilst we can see four-figure sums available for the Manchester derby, if we consider a clash in America’s MLS instead, things are very different. Even in the match odds, the liquidity available to back is more like £100 or so. Both team to score (BTTS) is similar, as is over/under 2.5 goals. However, even in a fairly mainstream market like the half time/full time betting, there is very little cash available and that which is is not at the sort of prices that any canny punter would be interested in.

Liquidity varies a great deal from sport to sport and market to market. With horse racing, you may only see decent cash available in the 30 minutes or so before the off, whilst in contrast large ante post markets such as the football World Cup will be active months or even years in advance. As an example of that, some five months before the Qatar World Cup in 2022, over half a million pounds had been bet already at one major exchange on the outright winner market.

Four-figure liquidity was showing to back or lay all of the main favourites, with a healthy three-figures on offer for most of the others. Ultimately liquidity can be an issue for many when it comes to exchanges but as long as you know what it is, why it varies and when it is most likely to be problematic, at least you can know when a betting exchange is likely to be a good call and when a normal bookmaker might be better.

Queuing For Better Odds

Crossing Fingers

Another topic we have touched upon briefly already is the issue of queuing for better odds. If we take yet another look at the odds for the City versus United clash, it is the figures in the central columns, in bold, that are the current back prices (on the left) and lay prices (on the right).

Outcome Back Lay Back Lay Back Lay
Man Utd 3.20

(£1,002)

3.25

(£12,908)

3.30

(£23,567)

3.40

(£19,778)

3.45

(£1,224)

3.50

(£600)

Man City 2.42

(£3,000)

2.44

(£81,009)

2.46

(£29,001)

2.48

(£40,076)

2.50

(£699)

2.50

(£2,505)

Draw 3.25

(£62)

3.30

(£12,000)

3.35

(£17,001)

3.40

(£200)

3.45

(£700)

3.50

(£8,009)

However, if you feel that the correct price for Man United should be a little higher, rather than accept 3.30 and get matched immediately, you could put in an offer, either at 3.35, or higher. If you decided you wanted to try and bet £10 on the Red Devils at 3.35, the odds of 3.40 in bold that currently shows £19,778 available to lay, would instead show your £10 at 3.35. The monies at 3.40 and 3.45 would shift one box to the right whilst the 3.50 would drop off the screen, so in a way you are pushing in to get your bet matched quicker but at smaller odds.

If someone was happy to lay your bet at those odds your wager would, at some stage, get matched. If that happened, you would stand to win a little bit more than if you had accepted 3.30. However, if the odds moved the other way and United shortened your £10 might never get matched. You would either not have a bet on the game, or you would be forced to alter it and end up with a price lower than the 3.30 you could have had.

Queuing for better odds works in exactly the same way with lower prices. Either way it is a risk and for most punters, quite possibly one not worth taking. Unless you are extremely price-sensitive and a real value seeker you are probably better off simply taking the odds on offer. For the sake of what will typically amount to pennies (in our example winning £23.50 instead of £23… less commission) you put yourself in a position of having to monitor the market and make sure it gets matched. Some will think that is worth it but in general, unless you are betting a huge sum, and firmly believe that the current price is not worth backing, we feel taking the instant match is wiser.

How Commission Fits In

CommissionIn the example above we have just given we mentioned you would win £23.50 at the higher odds, versus £23. However, as noted, both of those figures would be subject to the exchange’s commission. Commission is typically paid only by the winner, so if United lost and you lose your £10, there would be nothing more to pay. However, should the Red Devils somehow get the better of City, the winnings over and above your initial stake would be subject to commission.

Commission ranges between betting exchanges and sometimes according to your account settings, staking levels and/or the market involved. However, in general, you can figure on 5%, though this may drop to 2% or even lower. So if you won £23 on United, the commission would be £1.15, meaning you came away with £21.85. In contrast, had you got the slightly better odds and won £23.50, the 5% commission would be slightly higher at £1.18, leaving you with £22.32.

The table below shows the commission you would pay on a range of sums based on a 2% and 5% charge respectively.

Winnings (exc. Stake) With 2% Commission With 5% Commission
£5 10p 25p
£20 40p £1.25
£50 £1 £2.50
£100 £2 £5
£500 £10 £25

As you can see, commission will only reduce your returns by relatively small amounts, especially if it is charged at just 2%. Even so, it can add up over time, especially if you are lucky enough to hit a big win. Either way, it certainly pays to be aware of it and how it reduces the odds you are effectively getting.

Let us imagine, for example, that the £500 win shown above was generated by a £25 bet at 20/1 (which would be decimal odds of 21 on the exchange). The £25 commission at 5% reduces your win to £475. As such, had you been able to back the same bet at a bookmaker at 19/1 you would have won the same, whereas if you had found the same 20/1 odds you would actually have been £25 better off.

Do Exchanges Have Better Odds?

Beat the OddsThis brings us nicely round to the question of odds. For many people, the bigger odds of the exchange are its chief draw. But do exchanges really have better odds, even after commission is deducted?

It is beyond the scope of this feature to do a full analysis of the odds offered by exchanges versus those from bookies. In truth, such analysis is virtually impossible because there are thousands of markets with odds that change all the time, whilst there are three or more major betting exchanges and well over 50 UK bookmakers.

When we say, “who has the better odds”? do we mean on a certain sport or on a particular market? Are we comparing one bookmaker versus all the exchanges, all the exchanges versus just one bookmaker or indeed something else completely?

There is no simple or definitive answer to this question and in truth sometimes bookies will be better and sometimes exchanges will be. However, we feel the following is generally accepted to be true and serves as good guidance:

  • In general, exchanges do have bigger odds (even after commission)
  • Because of this, if you only ever want to use one site, a major exchange is a good choice
  • However, this only applies to fully formed markets with decent liquidity
  • So if you like betting on more unusual sports and markets, you should also use an online bookmaker too
  • Exchanges are best for outsiders and the odds on long shots can often be a a lot bigger than those offered by bookies
  • On favourites bookies are much closer to exchanges and may match, or even better the odds offered

Decimal Odds At The Exhange

Fractional vs Decimal oddsOne last thing to note about exchanges and odds is that they pretty much exclusively use decimal, rather than fractional odds. There are a number of different odds formats but in the UK you are most likely to see fractional, such as 5/1, and decimal, with 5/1 being 6.0. There are also US odds, as well as various formats from different countries/regions in Asia.

Traditionally the UK has used fractional odds but increasingly younger punters prefer decimal, which are used at the exchanges. Betting exchanges use decimal odds because they believe they are easier to understand and they are also, up to a point, more precise. To convert fractional to decimal you simply take the number on the left, so in our example above, 5, and divide by the number on the right, so 1. Five divided by one is five, and you then add on one, giving us decimal odds of six.

There are many online calculators and tables that can do this for you but we will show a small selection of odds below for reference. The key thing to note is that decimal odds effectively include your stake, giving you the return you would get back from a £1 bet, including that £1. So bet £1 at 6.0 and you get £6 back. Of course you also get £6 back when you bet £1 at 5/1 – the £5 winnings and your £1 stake.

Fractional Odds Decimal Odds At The Exchange
1/4 1.25
4/6 1.67
1/1 (evens) 2.00
6/4 2.50
2/1 3.00
8/1 9.00
25/2 13.50
33/1 34.00