Betting Exchanges

Imagine you’re a sane and sensible human being who thinks that England have no chance whatsoever to win the Football World Cup. Ok, you agree – so you’re sane. Now how do you go about having a bet on that?

You’ve got two options really,

1 – You place a bet on every other team to win the World Cup.

2 – You go to Betfair and you ‘Lay’ England to win the World Cup.

Let’s look at these options in more detail.

Option1

Placing a bet on every outcome will cause you to lose money on the event. The general overround for the ‘To Win the World Cup’ betting market is 15% – therefore if you were to place a bet on every selection to win the same amount of money your expectancy would be to lose 15% of your money. Now consider the odds for England to win the world cup are approximately 17.0 (16/1) it means that there is about a 6% of them actually winning it. So if you were to bet on every team except England, you would safely assume that you would lose (15-6) = 9% of your money. Not an option!

 

Option 2

If you were to go to Betfair and lay England to win the World Cup, what you are doing is offering someone else odds of 17 for you to win 1 unit. So if you wanted to try and win £/€10, you would have to offer someone else £/€170. If (more likely when) England do not win the World Cup you would then have 5% (that is Betfair’s rate) of the £/€10 deducted as a commission and your bank balance has now increased by £/€9.50.

 

Technically, a Betting Exchange is a platform that allows punters to place bets anonymously against each other. The exchange has no liability (risk) and makes its money by charging a small commision which is deducted to the payout of the winner of the bet. The first exchange opened in 2000 (Betfair) and it has grown from strength to strength over the years and is the largest Betting Exchange in the world making ‘a conservative’ £50 million a day.

Since Betfair launched a number of other betting exchanges have appeared and tried to take some of Betfair’s market share. Almost all have had little to no success and the second biggest Betting Exchange would be about 1/10 of Betfair’s size. The main reason for Betfair’s dominancy is that in order to run a successful Betting exchange you need lots of liquidity (money within the market that people want to bet). If there isn’t a lot of liquidity you would find it difficult to find someone with an opposing view to you and therefore no one would want to take your bet.

Sportsbooks have always been a little ‘jealous’ of the Betting Exchange as the exchange operates with no liability attached to it on itself and regularly will point out that the exchange can encourage corruption in Sport (particularly in Horse racing). Yes, we agree that while betting anonymously you have no idea who you are betting against however Betfair closely monitor for suspicious betting patterns and would report anything suspicious to the particular Sport’s governing body should they view anything to be suspicious.

Another reason why Sportsbooks are not keen on the exchange is that by using a combination of a Sportsbook and the Betting Exchange, it allows punters to be able to use techniques such as arbitration. To read about arbitration click here.

 

Have a look at this 30 second clip that explains how ‘backing’ works..

 

And then have a look at how ‘laying’ works…

 

Betfair exchange have a great offer of up to £/€1,000 cashback on your first 30 days activity. To join the number 1 exchange in the world click here.