To a beginner, the concept of a betting exchange can be difficult to grasp. There are many elements that are different to a typical bookmaker. Outlined in this guide are the basics and fundamental points to understand.
What actually is a betting exchange?
A betting exchange is a marketplace where any user can go to place a bet. The exchange we will refer to throughout most of our guides is Smarkets. Click here for our guide to opening an exchange account.
The key difference between an exchange and a bookmaker, is that you are betting against another individual - someone who wants to bet on the opposing outcome. Typically you would bet against a bookmaker.
As you are betting against other users, it is impossible to be banned or restricted!
What difference does this make?
Bookmakers factor a profit margin into their odds. This can be illustrated with an example:
Say the true probability of an event happening is 50%.
You would expect the odds to be 2.0
Bet365 will offer odds of 1.83 for this bet
This instantly puts the probability in the bookmaker's favour. If you win 1 every 2 bets, your balance should stay the same right? Well with this margin factored in, your balance will slowly diminish.
When betting using an exchange, their is no overarching bookmaker looking to make a profit. The margins are scrapped, meaning the odds available are true and fair (higher than on a bookmaker).
However, exchanges do need to make some money. They do this by taking a small percentage commission (2%) on winning bets. This is usually negligible, but something to be aware of.
What does 'back' and 'lay' mean?
On a betting exchange, you have the option to place 2 types of bets:
A 'back' bet
A 'lay' bet
A back bet can be considered the exact same as backing an event or team to win on a bookmaker as usual. You are betting on the particular event to happen. A back bet can also be referred to as 'buying'.
This bet is for Burnley to win the match.
Odds of 9.8
£10 returns £98 if Burnley win
A lay bet is a bet placed on an event to NOT happen. You are betting against the person who backed the event. A lay bet can also be referred to as 'selling'.
This bet is for Burnley to NOT win.
The bet will be a winner if the match is a draw or Man City win.
£10 returns £93.98
What is 'liability'? How is it different to stake?
As mentioned above, a betting exchange works by users betting against each other. Therefore you are liable to pay out winnings to the opposing bettor if they win. Liability is only relevant for lay bets.
The stake is used to determine your return based on the given odds. Whereas the liability is used to determine what you are liable to pay out.
You can treat the liability in exactly the same way as a stake on a bookmaker. i.e. The outlay needed to provide a certain return. You must have the liability in your account balance, as it is deducted from your balance when you place the bet (in the same way as placing a bet on a bookmaker).
The common misconception with beginners is that your 'stake' is deducted from your exchange balance when placing a bet, and the liability is only paid out from your balance if your lose. This is incorrect. Treat exchange liability in the same way as a bet stake on a bookmaker.
Avoid unmatched bets
A bet on an exchange will only be valid if there is someone willing to bet on the opposing outcome, as users are betting against each other.
For example:
A bet on Burnley to win will only be placed if there is someone willing to bet that the game will be a draw or Burnley will lose. The stakes of these are 'matched', creating a valid bet.
This is known as matching a bet.
Always check the market liquidity (explained below) before placing your bet, to tell whether your stake will be matched.
If your bet is unmatched at game commencement, it will be cancelled. From a matched betting perspective, this could potentially leave a bet elsewhere unmatched - exposing yourself to a potential loss.
What does everything mean!
When unfamiliar, the interface can look quite confusing.
Fundamentals:
For each event, the green box shows ' the bet to 'buy' the bet.
The blue box shows the odds to 'sell' the bet.
The small numbers under each box tell us the amount you can stake to be matched immediately at the given odds.
Using a particular market example shown below:
For this particular game, the 'back' odds for a 0-0 score are 22.0.
The 'lay' odds for the game NOT to be 0-0 (it will be any other score) 23.0.
The numbers in grey boxes to either side of the green and blue, are bets people have placed but are unmatched.
You can see the odds at which the market was last traded, in the grey boxes under the 'Last Traded Price' heading.
How are exchanges useful for matched betting offers?
Exchanges are a vital tool in any matched bettor's arsenal. We can use them for qualifying bets, free bets and finding out true odds.
With no bookmaker margins, lay odds are often quite close to bookmaker odds. This means we can lay off our bet on a bookmaker for a minimal qualifying loss, in order to then qualify for a free bet promotion. This is something we could not do without exchanges.
A similar action can be taken for free bets, to lock in a profit rather than chancing a win with a free bet!