Betting Exchange Betting Term Meaning
A betting exchange is a peer-to-peer platform that facilitates betting between two punters.
It is easy to over-complicate a betting exchange but the concept is very simple in that it is a platform where punters ‘exchange’ bets with one another. For instance, Jack wants to place a bet on England winning the FIFA World Cup and Paulo would like to bet that England will not win the World Cup.
The exchange allows for Jack and Paulo to come together and place their desired bets - in effect against each other - rather than using a traditional bookmaker’s service.
FIFA World Cup 2022 Winner Outright | Back | Lay |
|---|---|---|
| England | 8.00 | 10.00 |
On the betting exchange, punters have two betting options, to back or to lay.
Back: the back bet is effectively a ‘yes’. Will England win the World Cup? Yes, that’s the back bet. These are identical to a bet you are able to place at a traditional bookies. Based on the example, Jack wants to ‘back’ England to win.
Lay: this is the ‘no’ side of the bet. Paulo wants to ‘lay’ England - bet against them winning the World Cup. It does not matter which other country wins, as long as it is not England.
The next phase is the price. Jack and Paulo need to agree on the odds for this bet. Jack, being the punter who is backing, wants to get the highest odds possible. Paulo, as he will lay this bet, wants the lowest odds due to carrying the liability for the payout of the wager.
As you can set your own odds, Jack places a £10 back bet on England to win the World Cup at 10.0 (9/1 in fractional). This is put on the lay side of the betting market.
FIFA World Cup 2022 Winner Outright | Back | Lay |
|---|---|---|
| England | 8.00 | 10.00 £10 |
Paulo thinks 10.0 is too high, he places a £10 (backer’s stake) lay bet at 8.0. Currently, there is no bet because of the price differential.
FIFA World Cup 2022 Winner Outright | Back | Lay |
|---|---|---|
| England | 8.00 £10 | 10.00 £10 |
With the bets not being matched, Jacks changes his wager (you can do this on an exchange with unmatched bets) to 9.0. Paulo agrees to change his as well to 9.0 and now we have a matched bet.
-> Jack: Back bet £10 England World Cup 2022 Winner @9.0
- £10 x 9.0 = £90 return (£80 profit minus stake)
- The backer’s stake means Paulo is accepting the liability of Jack’s £10 bet which is £80 (profit if he wins)
- £10 profit if the lay bet is correct
To put it another way, the total prize pot is £90 to the winner. Jack puts in £10. Paulo puts in £80. The winner simple gets the other punter’s cash.
Advantages of Using a Betting Exchange
There are plenty of benefits when using a betting exchange. Here are some of the things you can take advantage off:
Better Odds: more often than not, you’ll find that the betting exchange offers better prices than a traditional bookmaker. This is because the bookmaker sets a margin on its markets to ensure a profit. As the exchange doesn’t require this, the odds can be higher as a result. There is a commission charge to consider though which can eat into a punter’s profits.
Trading Bets: with the ability to ‘back’ and ‘lay’, you can trade bets on an exchange. You lay a bet at a low price and look to back the same bet at a higher price to secure a profit regardless of the outcome. For example:
-> England are 9.0 (8/1) for the World Cup.
-> You ‘lay’ this bet - £80 liability (= £10 backer’s stake).
-> Before the tournament, Harry Kane gets injured and the odds on England go up to 21.0 (20/1).
-> You place a £5 ‘back’ bet on England at this price.
-> Possible outcomes:
- England win. £5 x 21 = £105 - £80 liability = £25 profit
- England don’t win: £10 profit from backer’s stake - £5 England win bet = £5 overall profit
Disadvantages of Using a Betting Exchange
Betting exchanges are far from perfect. There are also some drawbacks that you should consider before signing up.
Market Liquidity - one of the biggest downfalls of a betting exchange is market liquidity. For instance, if a regular bookmaker is offering odds on a market you can be absolutely sure your bet will be accepted. With an exchange, you need another partner to dance with. As illustrated with Jack and Paulo, the bets need to match which means liquidity in the market.
Commission - as it stands, there are only a handful of trustworthy exchanges. Since there isn’t much competition certain exchanges may charge higher commissions because punters don’t have any other options. Currently, Betfair charges a commission of 5%.
The lowest in the industry is Smarkets at just 2%. This is the surcharge a punter pays on winning bets for using the platform. You need to factor in the commission from your potential winnings to assess the true value of the bet and then you can compare the price against a traditional bookmaker.
Combination bets - if you like placing Trixies, Yankees or any other form of system bet involving multiple selections, it is not as easy on an exchange. Most now offer straight up accumulator betting but again liquidity in the markets will play a part in your bets being matched.
For instance, if you placed a £10 treble bet with each selection being 10/1. The first selection wins, so you have £110 on the second leg, this wins and you have £1100 on the third leg which needs to be matched for the bet to payout in full. This is a weakness on some exchanges.
