Pros and Cons of Betting Exchanges

Two Men Looking at Cell Phone, Moneyline Sportsbook Marquee
Sports betting has existed in some form or another for thousands of years. The earliest sports wagers were made between individuals, with no middleman in the equation.

As the industry evolved, traditional bookmakers began handling the action for sports gamblers. They still accept action from bettors today and make their money by skewing odds in their favor.

Betting exchanges arose in the early 2000s as an answer to the unfair odds featured at standard sportsbooks. Betfair, the first ever exchange, is aptly named for its mission to offer more reasonable odds.

Exchanges haven’t taken the sports gambling world by storm. However, they’ve carved out a nice niche in the betting industry.

The question is, though, should you use these sites over regular online bookmakers?

I’m going to cover the various pros and cons of betting exchanges so that you can make an informed decision. But first, I’ll discuss the basics of how they work.

How Does a Betting Exchange Work?

A betting exchange is essentially a meeting place for gamblers who want to bet on opposite outcomes in a sporting event. The gambler who wagers on an outcome winning is “backing” the odds, while the person betting on the outcome losing is “laying” odds.

Both sides must agree upon the odds and stakes. The bet becomes valid once the parties agree to the conditions.

The backer is risking money on their chosen outcome winning. Assuming they win, then the layer needs to pay them. Meanwhile, the layer is acting as the bookmaker. They win the backer’s stake if the outcome loses.

As for the exchange, they earn money by charging commissions on the action. Most sites only take a commission from the winning side.

Here’s a step-by-step explanation of how an exchange bet works:

  • You lay $25 that the Baltimore Ravens won’t win the Super Bowl at +3000 odds.
  • As long as Baltimore doesn’t win the title, you earn a $25 profit.
  • But if the Ravens win, you must shell out $750 (30.00 x 25) to the backer.
  • The backer would pay a commission to the exchange based on their winnings.
  • Ex: 750 x 0.05 (5% commission) = $37.50 goes to the operator

In summary, you and the other party create the market—not a bookmaker. You can propose stakes and odds as either a backer or layer. You simply need another gambler to agree to the terms to lock in the wager.

Advantages of Betting Exchanges

Andrew Black and Edward Wray, both sports gamblers themselves, created Betfair with the bettor in mind.

Therefore, it’s no surprise that betting exchanges offer gamblers distinct advantages over traditional bookmakers. You can see the different benefits of exchanges below.

Better Odds

You shouldn’t automatically assume that an exchange will always have superior odds than standard online sports betting sites.

But they generally tend to feature better prices. This trend is especially true with longshot wagers, which often carry favorable odds at exchanges.

Aerial View of MLB Baseball Field, Stacks of Money

Traditional sportsbooks attach high prices to such bets in order to minimize their risk. Meanwhile, many exchange layers look at longshot wagers as easy money and are willing to offer better odds to draw more backers.

You, of course, have to account for the commission when accepting such bets. A 5% commission can be significant when you do win a bet with long odds.

Nevertheless, you’ll still find a lot of good deals at exchanges. You might consider comparing various odds at sportsbooks and exchange sites to find the most value.

No Margins to Deal With

Regular betting sites have an advantage over the average bettor due to their margins. A margin is the difference in odds that results in the bookmaker earning “juice” from the bets they offer.

Here’s an example:

  • Tampa Bay Rays +165
  • New York Yankees -205

The difference in odds here creates a 4.94% margin. You can find easily find these figures by using a sports betting margins calculator.

Again, exchanges take a commission. This amount generally ranges from 2% to 5%, with the former being much more favorable than standard bookmaker margins.

Ability to Lay Odds

The typical sports betting scenario sees a bookmaker create the odds, and you wager on them. You never get to act as the layer in this case.

Exchanges are unique in that you can be the bookmaker. You won’t have built-in margins like a sportsbook, but you can at least take outcomes that you think have a strong chance of losing.

If you’re a well-funded layer, you can create or accept a number of longshot bets to rack up small profits. As long as none of these outcomes win, you’ll earn a bunch of small payouts.

You may lose one of these wagers occasionally. Provided you have the funds to back it up, though, you’ll be fine in the long run.

Live Boston Celtics Game, NBA

You can even lay odds to minimize risk on your backed wagers. Here’s an example on how this works:

  • You back the Boston Celtics to win the NBA Championship at +1600 odds.
  • The Celtics finish the regular season as the number-two seed.
  • Their odds of winning the championship are now at +800.
  • You lay these odds to take the opposite side.

Depending upon how much you back and lay, you can even make a guaranteed profit in this situation.

Winning Bettors Aren’t Banned

One of the most common sports betting misconceptions is that winning bettors are automatically banned. This belief isn’t necessarily true, but it does come to light in some cases.

If you continually arbitrate, or bet on all possible outcomes in a way that guarantees profit, bookmakers will likely ban your account.

Some sportsbooks also limit your account if you’re a “sharp.” These are highly-skilled bettors who can influence odds with their wagers.

Exchanges don’t restrict your bets or ban you just for being successful. After all, other gamblers are paying your winnings and not the sportsbook.

Downsides of Betting Exchanges

Sports gambling exchanges sound great up to this point. Of course, everybody would be betting at them if they were perfect.

But exchanges aren’t completely flawless. In fact, they have some notable drawbacks, which you can see below.

Lower Liquidity

Exchanges like Betfair and Ladbrokes Coral have a lot of traffic. Therefore, you can find plenty of markets to wager on.

Soccer Player Kicking Ball, Ladbrokes, Betfair

But as a whole, betting exchanges usually have lower liquidity than the average sportsbook. This situation presents problems when it comes to matching bets.

You won’t have much trouble finding a match for primetime TV games and playoff matchups. However, a less heralded sport like darts or certain longshot bets present a different story.

Every exchange wager requires two parties to happen. You may not find a taker when creating a market you want.

Sometimes, you will spot the type of bet you’re looking for, only to get odds that you wouldn’t dream of taking.

In any case, exchanges won’t always have what you’re hoping for in terms of odds and bet types. You may need to turn to traditional sportsbooks at times.

No Parlays and Limited Accumulators

Continuing off the last point, exchange betting sites don’t have parlays. They also have little-to-no accumulators too, depending upon the operator.

This aspect may not bother you if you’re not into parlays and accumulators anyway. However, you definitely want to consider this matter if you are into either type of wager.

Fewer Betting Exchanges

As mentioned before, exchanges haven’t taken the sports gambling world by storm.

Only a handful of these sites exist today, including Betfair, Ladbrokes Coral, Matchbook, and Smarkets.

Exchanges are a great idea in theory and many bettors use them on a daily basis. But they haven’t proven superior enough to wrestler a huge market share away from traditional betting sites.

More Freedom for Match Fixers

Match fixing can happen in any type of sports wagering. However, exchanges present breeding grounds for this type of corruption more so than regular bookmakers.

A layer could offer really attractive odds that attract numerous backers. They can then pay off an athlete for less than they stand to make by winning.

Few Bonuses – If Any

Many online sportsbooks offer welcome bonuses to new customers, such as a free bet or deposit bonus. For example, BetOnline offers a welcome bonus that can be worth up to $1,000. These offers give you a chance to earn extra cash (deposit bonus) or at least recoup losses (free wager).

Bonuses Offered on BetOnline

Exchange betting sites, on the other hand, don’t offer many bonuses. Some sites don’t feature any promotions at all.

The logic here is that exchanges are already giving you a good deal by taking small commissions. They don’t feel the need to shower you with rewards on top of everything else.

Bigger Learning Curve Involved

Online sportsbooks are a little easier to use than exchanges. You only have to concentrate on placing bets based on the given odds with traditional bookmakers.

Exchange sites, meanwhile, are presented in a different format. You also need to worry about setting your own odds if you’re looking for a specific bet.

Of course, exchange betting isn’t rocket science. It’s just a bit harder if you’re already experienced with regular sports gambling or new to the matter in general.

Conclusion – Are Betting Exchanges Right for You?

Your betting experience level should play a role in whether or not you consider exchange betting. You don’t want to jump right into this style of wagering when you’re still learning the ropes.

Instead, you’re better off figuring out the basics of sports gambling and placing wagers with a traditional bookmaker in the beginning.

Assuming you do have some experience, though, then betting exchanges are worth considering due to their special advantages.

First off, they give you the chance to lay odds. You can make money off the losing side while acting as the bookmaker.

You’ll also be able to get better prices on average. This is especially true when considering longshot wagers.

One more thing that betting exchanges do differently is not ban winners and arbitrage bettors. They merely collect commissions off the winning side.

However, you also have to consider the downsides to betting exchanges. These sites don’t have as much liquidity as regular sportsbooks, meaning there are fewer wagering options available.

The lack of liquidity also means that there are no parlays available. Accumulators are in limited supply as well.

You can’t find as many betting exchanges either. The few that exist mainly operate in the UK and other parts of Europe.

Another aspect to worry about is the lack of promotions. You’ll have access to few, if any, bonuses at these sites.

It’s up to you to determine whether the pros outweigh the cons. If you’re