In the early noughties, betting exchange sites arrived onto the online gambling scene and shook up the industry as a whole.
Rather than betting against ‘the house’ by placing bets with a fixed odds bookmaker, customers could now bet against each other in a model based on financial stock exchanges, determined by the laws of supply and demand. Also known as peer-to-peer betting.
Not only were the odds better because it was a more efficient market, but it gave customers the chance to lay bets, as well as back them. Something they previously couldn’t do at a regular Sportsbook.
In this article, we’ll explain the mechanics of how a sports betting exchange works as well as introduce you to the top betting exchanges in the UK where you can try out the whole concept for yourself.
Any type of bet needs two sides to it. The person backing the bet is saying that an event will happen. The person laying the bet is saying that it won’t happen. A backer thinks Novak Djokovic is going to win the upcoming US Open and wants to bet on him; a layer is happy to offer odds on that happening and taking the view, so to speak, that he won’t win it.
The layer/bookmaker sets odds on a player/team/horse etc to win a game/tournament/race and the backer/customer chooses whether they want to place at those odds. If they do, they then just need to decide on their stake. If the bet wins, the customer gets paid out. If it doesn’t, the bookie keeps their money. This was the format that bookmakers used almost 250 years ago and the same one that Sportsbooks use to this day.
A sports betting exchange works differently. The Exchange provides a market on a particular event and enters the runners. For example, the eight horses taking part in a race. But the Exchange doesn’t lay any odds.
Layers then come and price up the market themselves, also determining how much money they’re prepared to accept on a particular runner at particular odds. Backers then have two choices: to bet the horse at the odds offered, or to request slightly bigger odds in the hope that the layers will meet their request and match their bet.
They too need to establish how much money they wish to place on the horse, either at the odds offered, or the odds they’re asking to be matched at. The sports betting exchange holds the customers’ money (both that of the backer and the layer) until the result is known.
They will then pay out the money to the winner of the bet, charging a small commission on the winner’s profit, but not charging the loser.
Betfair is the dominant player among betting exchanges in the UK. In fact, you could say it has a monopoly on the market ever since starting out in 2000. The reason for its success these days is that because it has so many more customers than the rest, there are more active customers providing great liquidity (amount of money in the markets waiting to be matched) and ensuring you can almost always place a bet, at fair odds, for large amounts of money, if you wish.
At Betfair you choose how much commission you want to pay on winning bets: 8%, 5% or 2%. The commission level you choose determines what Rewards Plan you’re on. The more commission you choose to pay, the more and better rewards you get. Such as more free bets, cashback on losses in a month where you lost money, free spins on slots, and so on. Choosing a commission of just 2% means you save money on each winning bet, but it also means you have no rewards to look forward to.
The minimum bet on the Exchange is just 1GBP. Premium charges apply to around 0.5% of Betfair customers and only those who have shown a lifetime profit, bet on an extremely regular basis, have bet on 250 different markets and trade, rather than bet, on markets.
Founded in 2008, the jury was out as to whether they’d be the latest of many to try to realistically challenge Betfair as the go-to Exchange for serious punters and traders.15 years down the line and it’s safe to say that they haven’t really challenged Betfair’s monopoly, nor have they fallen by the wayside.Whereas most punters are still attracted by the far better liquidity at Betfair and the benefits of that (more money waiting to be matched, better prices), Smarkets can boast a better visual presentation of their markets. That includes also displaying decimal odds as percentages and graphs showing over time when matched bets were placed and at what odds.
A measure of SBK’s success is that the company was listed by the Wall Street Journal as one of 10 European start-ups to watch. And in 2017 were considered by the Financial Times as being the 25th fastest growing company in Europe.
Their commission is a flat 2% for the vast majority of their users. The most prolific users (staking over 1 million GBP a calendar month or who made over 25,000GBP profit in the last calendar year) may pay 1% or 3% commission if they also meet other criteria. But this really only affects a tiny percentage of users. Minimum stake is just 5p.
New customers can get up to 50GBP in bonuses if each of their first five trades of 10GBP each ended up losing.
Betdaq will probably always be known as the Exchange who came closest to rivalling Betfair without ever managing to come remotely close to actually doing so. Starting out just a year after Betfair in 2001, at their peak they had 7% of the sports betting exchange market. In order to challenge Betfair, they tried everything including sponsoring plenty of horseracing events at Kempton Park, becoming the official partner of Celtic FC and being the sponsor of London Irish rugby team.
At one stage they even offered 0% commission on certain markets to try to steal Betfair’s customers who at the time were disgruntled with Betfair’s premium charge, which applied to their busiest users.
When none of that worked, they agreed to be acquired by Ladbrokes in early 2013, the idea being that existing Betdaq customers and Ladbrokes Sportsbook customers together could try to challenge Betfair’s monopoly, with the same Exchange being available on both websites. When that didn’t work either, the Betdaq exchange was sold back to its owner Dermot Desmond in 2021. The minimum bet at Betdaq is 50p on desktop/laptop and 1GBP on mobile; the commission rate is a flat 2%.
Time to explain the difference between back and lay betting, a key element to betting on a sports betting exchange.
At its most basic level, back betting (backing) is what punters have been doing ever since the first bookmaker decided it was a good idea to offer odds on the outcome of certain events. Backing is deciding that something is going to happen and putting money on it at odds determined by the bookmaker. Here are a few examples:
Lay betting is the opposite. It’s offering odds on the event happening, or to put it another way: betting that it won’t happen.
The beauty of a betting exchange is that on it, you can do both. One day you can play punter, the other day you can play bookie.
But the even greater beauty of it is that you can play both roles within the same betting market.
A good lay betting system could be to lay Spain to beat Scotland at 1.3 pre-match. If after 60 minutes it’s 0-0, you can then back Spain at around 1.8 and assuming your maths is correct (the Exchange will assist you anyway), you’ll lock in a profit on the market and win whatever happens.
Betting exchange sites differ from traditional bookmakers in several ways, the most obvious of which is that with the former, you’re betting against other people. And with the latter, you’re betting against the house.
Another difference is that on an exchange you can both back and lay (play bookmaker yourself) bets, whereas on a Sportsbook you can only back.
If you’re a serious punter, for whom the bottom line (profit) is literally the bottom line, then you should focus on betting on an Exchange.
But that comes with a caveat: only Betfair day-in-day-out offers a better return on your investment than one of the better Sportsbooks. The other betting exchanges in the UK sometimes do, sometimes don’t.
That’s because only Betfair really has the liquidity to ensure that you consistently get better odds and that there are enough customers out there that are happy to take the ‘other’ side of the bet, to ensure you can place large bets.
Another big difference is that betting exchanges allow you to trade positions to ensure guaranteed profits. On Sportsbooks this is possible to an extent due to Cash Out, but you give away a margin with each Cash Out executed.
The single most important element of betting exchange sites. Consistently getting higher odds than at a bookmaker thanks to a more efficient market is crucial to showing a long-term profit. Even with paying commission on winnings, you’re better off with the higher odds. And when it comes to backing outsiders, the odds can sometimes be twice as big.
On one day you may take the view that runner X is a great bet to win. So, you’re a backer. Another day you may take the view that runner Y is a poor bet to win. So, you’re a layer. On betting exchanges you can be both whenever you wish, depending on your opinion and the market in question.
In the back and laying betting section we highlighted how you can first lay something at short odds, and then back it at bigger odds to ensure a profit. But there’s nothing to stop you going through the same process dozens of times in-play during a match or race. This is known as trading and allows you to adjust your position on the market, based on fluctuating odds and what you make of them.
As we’ve seen, commission is paid on winning bets and ranges from 8% to 2% of what you won. With bookies, you don’t pay commission on any wins. Having said that, the higher odds at betting exchanges tend to more than make up for commission costs anyway.
A betting exchange is only as good as the liquidity available on it. In other words, an exchange with low liquidity where you get poor odds and can only stake a few quid at a time… is pretty useless. In contrast, a Sportsbook will always offer you somewhat fair odds on any bet (at last better than what you’d get on an exchange market with poor liquidity) for a decent stake. In this regard (liquidity) Betfair is far better than the rest. However, some of the less popular markets on obscure sports or lower-level leagues may have liquidity issues on Betfair, as well.
On a big event like a Premier League or Champions League match, a top bookmaker like Bet365, Ladbrokes or Paddy Power will offer literally hundreds of markets on the game, including how many fouls, offsides, or shots on target there will be. Because betting exchanges know these more obscure markets are unlikely to have much liquidity, they probably won’t offer them at all. So may only offer around 20 to 30% of the number of markets a Sportsbook does.
Let’s start by addressing the elephant in the room: when it comes to betting exchanges, there’s Betfair, and then there’s the rest.
The key issue here is liquidity. Betfair has close to 1 million users of the Betfair Exchange so that means there are always sufficient customers who want to back and lay bets on markets, thus ensuring that you can secure better odds than at Sportsbooks and be able to place large bets because among everyone, the money is there to match your bet. That said, other betting exchanges have their merits too; and there’s nothing to stop you from holding accounts at several ones and picking and choosing when to use which.
Higher odds, backing and laying and the ability to trade in-play make Betfair the obvious choice for the serious, or pro punter.
That said, betting exchange sites are more complex and harder to get your head around so won’t be for everyone.
Betting exchanges are online platforms that enable users to bet against each other. They provide a marketplace where individuals can back or lay a bet, effectively taking on the role of a bookmaker. Backing a bet means that you are betting on a particular outcome to occur, while laying a bet means that you are betting against that outcome. Betting exchanges make their money by charging a commission on each winning bet.
Using a betting exchange can seem intimidating at first, but with a bit of practice, it can become an effective way to gamble and trade. Here are some tips to help you get started:
Pretty much anything that you’d bet on at a sportsbook/bookie/fixed odds bookmaker. So all manner of sports, plus politics, reality TV shows and other specials.
Betfair. Because it has far more customers than any other betting exchange sites, it has more liquidity, and this allows you to get higher odds and bet more money than at other betting exchanges.
There is no maximum bet. As long as another customer or customers have money on the other side of the bet to match yours, there’s no limit to how much you can place on a bet.
Financial stock exchanges. The concept of the laws of supply and demand determining prices that is the core of financial markets works pretty much the same way on betting exchanges
Betting exchanges are generally safe to use, but as with any online platform, there is always a risk of scams or fraudulent activity. Only use reputable and trusted betting exchanges.
They charge a commission on winning bets, between 2% and 8%, for setting up the exchange and allowing customer to bet among themselves. But they don’t charge commission on losing bets.
Betting exchanges charge a commission on each winning bet. The commission is usually a percentage of the winnings, and varies between exchanges.
Yes, many betting exchanges have mobile apps or mobile-friendly websites that allow you to use their platform on your mobile device.
It depends on the betting exchange. Some exchanges offer a wide variety of sports, while others may focus on specific sports. Check the exchange's website to see which sports they offer.
Yes, there are often limits on how much you can bet on a particular event or market. These limits vary between exchanges and can also depend on your account status and betting history.
Yes, most reputable betting exchanges require you to verify your identity before you can start using their platform. This is to prevent fraud and ensure the safety and security of all users.