Basics of Online Betting Exchanges

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Many gamblers are used to traditional sportsbooks where they bet against a bookmaker’s odds. And regular sportsbooks are found in great number across the internet.

However, only a few online betting sites operate as “exchanges.” These are unique gambling sites that allow bettors to actually set their own odds.

Using betting exchanges isn’t much different than gambling at a standard online sportsbook. But the process does involve a few differences.

That said, I’m going to cover more on what sports gambling exchanges are along with how they’re unique from traditional online betting sites.

What Is a Betting Exchange?

Again, a betting exchange is very similar to any kind of sportsbook. You still wager on outcomes based on sporting events.

However, they also feature notable differences from a traditional bookmaker. First off, you can both buy (a.k.a. back) and sell (a.k.a. lay) the outcomes. Secondly, you can also trade in real time during an event to either guarantee a profit or reduce losses.

As for the operators, they make money by charging a commission on winning wagers. This setup differs from standard bookmakers, who earn money by taking “juice” from the losing side.

Betting Exchanges Are Relatively New

One reason why exchanges aren’t as well-known as traditional sportsbooks is because they haven’t been around for long.

Betfair and Flutter founded the first betting exchanges in 2001. Flutter closed just one year later, making Betfair the sole online exchange on the market.

They continue leading this segment of the sports betting world. But other exchanges have joined them, including Ladbrokes Coral (acquired BETDAQ), Matchbook, and Smarkets.

How Does Backing and Laying Work?

Regular sportsbooks see you buy or back an outcome, while the bookmaker will lay or sell against the outcome. You don’t get to ever be the seller in this situation.

An exchange differs by allowing you to either back or lay the odds. The latter presents a unique opportunity to act as the bookmaker.

The exchange operator, meanwhile, doesn’t actually take part in any of your bets. They simply provide a wagering platform for the involved parties and act as a custodian for the funds.

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Here’s an example of an exchange bet:

  • You think that the Dallas Cowboys will beat the Detroit Lions.
  • You back the Cowboys to win.
  • The gambler that offers you this bet is laying the action.
  • You and the other gambler or bookmaker must agree on the stakes and odds.
  • If the Cowboys lose, the bookmaker keeps your stake.
  • Assuming the Cowboys win, the bookmaker pays you winnings based on the agreed-upon odds.

Again, the operator takes no part in making the bets nor deciding the odds. Therefore, every wager requires both a backer and layer who agree upon all terms.

Live Betting on Exchanges

Betting exchanges are just like standard bookmakers in that they offer the possibility for live (a.k.a. in-play) wagering. As you may know, these propositions allow you to bet on action as a match is happening.

Live exchange betting gives backers and layers an opportunity to agree to quick bets based on in-play propositions. For example, the layer may offer a wager on which baseball team will be the next to hit a home run.

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Operators can actively manage live wagering on their site if they so choose. They exercise this option to ensure that layers don’t get cheated by unsavory backers looking for highly favorable bets.

Here’s an example of how this process works.

  • Arsenal is losing a Premiere League match by one goal.
  • A layer offers specific in-play odds on Arsenal winning the match.
  • Arsenal’s opponent scores another goal and goes up by two.
  • The operator temporarily delays the betting.
  • The player can now the void unmatched bet without being taken advantage of.

Arbitrage Opportunities at Betting Exchanges

You might be aware of arbitrage betting, where one gambles on all possible outcomes in a bet to guarantee themselves a profit. Those who continually look for these opportunities are known as “traders.”

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A trader is willing to take risk on bets where no immediate arbitrage opportunity is available. They instead hope that an arbitrage event comes at a later point, thus allowing them to earn a profit.

Traders can operate at either a standard sportsbook or an exchange. But they must accept added risk when operating through an exchange.

Going further, a trader must be willing to agree to bets when no immediate arbitrage possibility is available. Such cases require completing the arbitrage by finding more favorable odds later on.

After all, the operator doesn’t offer its own lines. Bettors must instead create and agree to wagers themselves.

Exchanges give traders a chance to arbitrage through both pre-match betting and live wagering. The latter is riskier but also offers a higher profit potential.

Traders can even use a combination of sportsbooks and exchanges when arbitraging. For example, they could lay a small amount at an exchange, then bet at a higher price with a bookmaker.

How Are Betting Exchanges Different From Regular Sportsbooks?

I’ve briefly covered some differences between traditional bookmakers and exchanges. But I’ll rehash these variations more below.

Operators Make Their Money Differently

A regular sportsbook earns its profits by taking juice from the losing side of a bet. They create a margin between the odds to attain this juice.

Here’s what it looks like:

  • Golden State Warriors +115
  • Toronto Raptors -140

Using a sports betting margins calculator, you’ll find that the margin between these odds is 4.85%. Assuming the bookmaker gets equal action on both sides, which rarely happens, they’d earn a guaranteed 4.85% profit.

Betting exchanges don’t lay the odds themselves. They instead take commissions from the winning side. The only exception to the latter is Matchbook, which charges both winners and losers.

Major bookmakers like Ladbrokes Coral and Betfair both feature commissions that top out at 5%. However, you can lower this amount by backing or laying bigger wagers.

Smarkets charges the winning side a 2% commission. Matchbook is essentially the same, except that they take 1% from the winners and losers.

Exchanges Have Better Prices on Average

Exchanges can sometimes be more expensive than traditional sportsbooks, especially when 5% commissions are in play. But they’re usually cheaper on average when accounting for margins.

Matchbook and Smarkets are very generous by only taking a 2% fee. Betfair and Ladbrokes Coral can also be solid if you’re a big bettor.

Everybody Is Welcome at Betting Exchanges

Some gamblers are banned from online sportsbooks for being “sharps.” A sharp is a professional who, when identified, can influence the odds with their bets.

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“Squarebooks,” or those that concentrate on recreational bettors, don’t like sharps. They may ban these pros or at least restrict their bet sizes when given the chance.

Betting exchanges are different, though, because they’re not directly competing against sharp money. Given that they’re only taking commissions, they have no bias against skilled professionals.

No Parlays

Exchanges feature fewer markets than traditional bookmakers across the board. Therefore, they don’t allow layers to offer parlay bets.

Most exchanges also avoid accumulators as well. Betfair offers limited types of accumulator wagers, but nothing like what’s seen with many standard bookmakers.

Restricted Odds

Those who like long-shot bets may be discouraged that betting exchanges offer limited odds.

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Most exchanges feature odds ranging 1.01 (1 to 100) and 1000 (999 to 1).

You may not ever think of going above 999 to 1. However, you’ll find it restricting if you do like taking the biggest underdog outcomes.

Greater Potential for Match Fixing?

Although it rarely happens, match fixing is always a concern with sports betting. This concern is sometimes even greater with betting exchanges.

The chief worry is that anonymous gamblers are allowed to create their own markets. They could convince an athlete to throw a match beforehand, then lay one or more bets.

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Contrast this scenario to the typical drill at regular sportsbooks. Bookmakers lay all of the odds, which removes some freedom from potential match fixing.

Online exchanges have commented on this matter, noting that they track betting activity to keep tabs on customers. The software element allows them to run detailed analysis of various gamblers’ accounts.

They also argue that regular bookmakers in countries like the UK take cash bets. This situation leaves no trail of anonymous bettors if match fixing is indeed going on.

Conclusion

Betting exchanges aren’t overly complicated to figure out. However, they do have some nuances when compared to traditional sportsbooks.

The biggest difference is that exchanges don’t create lines. They merely serve as a platform where multiple parties come together and place bets.

Seeing as how these sites don’t make money through skewed odds, they instead charge commissions. The commissions range from 2% to 5%, depending upon the operator.

Even with commissions coming out of wagers, betting exchanges are still cheaper than the average sportsbook. They also don’t exclude skilled bettors from getting in on the action.

But exchanges aren’t entirely perfect. They don’t have as many markets as standard bookmakers (e.g. no parlays) and restrict odds.

Nevertheless, betting exchanges are definitely worth considering if you’re willing to adapt to their learning curve.