Betting exchange: how does it work?

A betting exchange is a site which allows you to exchange sporting bets anonymously with other punters.

On a betting exchange, you can act in two different ways:

• You can place a conventional type of bet, just as you would through a bookmaker. For example, you may want to bet on a tennis player winning his or her match. This involves buying a bet (known as “back betting”). If the player loses, you lose your stake. If he or she wins, you win your stake multiplied by the odds.
  
  
• You may also bet against a particular result happening. This major innovation was introduced by betting exchanges. You can offer bets and odds to other punters and play the role of the bookmaker! For example, if you think that Fernando Alonso won’t win the next Formula 1 Grand Prix, you can sell (or “lay”) bets on Fernando Alonso. Here, you win in all circumstances other than Alonso winning the Grand Prix.

See an example of betting using a Betting Exchange

Betting exchanges offer many different types of bets and you can bet on a whole host of different sports.

Betting exchange: Pros and cons

The main advantage of betting exchange is that it offers more attractive odds than bookmakers. Why is this? Because bookmakers take a margin on the bets they offer, and betting exchanges don’t. A betting exchange charges commission of around 5% of the net winnings for the winner of the bet. On average, this is 5% less than the bookmaker’s margin, which is approximately 10%.

Thanks to a betting exchange, you can also bet against a particular event happening.

The main drawback to betting exchanges is that you can only bet if other punters are willing to exchange a bet with you. This is not always the case, especially for sports which receive less media coverage. Another disadvantage is that the principle of betting and the placing of bets are more complicated than with a traditional bookmaker.

Another drawback to betting exchanges is that it is impossible to place combined bets.

How do I place a bet on a betting exchange?

Let’s take the example of the 2005 Champions League quarter final between Lyon and PSV Eindhoven on Betfair (the biggest of the betting exchanges).

Here we zoom in on how to place bets:

The figures in bold type correspond to the odds and the numbers below them refer to the total amounts of money available at these odds.

The blue section on the left-hand side of the table corresponds to the purchase of bets (Back) and the purple colour on the right-hand side of the table corresponds to the sale of bets (Lay). We can see that it is possible to bet a total amount of 4,048 euros on a drawn match at odds of 3.6, and 6,535 euros at odds of 3.55. It is also possible to sell Lyon for 5,332 euros at odds of 1.83.

Imagine that you have decided to bet against Lyon. You must click on the purple box for Lyon (Lay). The bet placement window appears on the right-hand of your screen. You must then choose your stake. To simplify matters, let’s say that you are staking 100 euros at the odds available for the sale of bets (1.83). If Lyon wins, you lose 83 euros ((1.83-1)*100). If Lyon doesn’t win (= draws or loses the match), you win 100 euros.

You may also decide to buy at higher odds or sell at lower odds. To do this, you change the odds in the box containing 1.83. In this case, your bet will be confirmed once a punter has committed to your terms. If your odds are unrealistic, you may find that no other punters accept your bet.

Return to top of page