For decades, the process of placing a bet was a wholly one-dimensional exercise.
You’d head down to your local betting shop, study the form guide from the newspaper pages pinned to the wall, and then hand over actual cash to the clerk operating the till.
As with most things in life, the Internet changed everything.
Many betting firms could suddenly tap into a whole new market, offering betting markets to punters via really slow dial-up powered websites (this was the early 2000s, after all). As technology improved, so too did the experience of the punter, and today we have a galaxy of sites and apps we can use to have a flutter or two.
Meanwhile, in a small office in a leafy suburb of the UK, a quiet revolution was brewing….
Me vs You
Andrew Black and Edward Wray were a pair of university graduates ad sports betting enthusiasts who felt that there must be a ‘fairer’ way to bet.
Most bookmakers add an ‘over-round’ to their odds, which means that they can limit their financial liability in any given betting market.
For example, imagine there was a market for coin tossing. Given that there is an equal chance that a tossed coin will land on head or tails, the theoretical betting odds should be Evens on both sides.
But bookies have money to make, and so their prices would actually probably be something like 5/6.
Why? Because then they can lock in a profit and limit their liability. If 100 people bet on that particular market – 50 on heads, 50 on tails – then the firm would make a decent return regardless of which side the coin landed on.
All bookmakers have an over-round built into their odds; the size of which varies from brand to brand and market to market.
So Black and Wray pondered doing something different: what if punters bet against one another at odds they could set themselves?
And thus, peer-to-peer betting was born via their platform, Betfair Exchange, which remains the largest exchange on the planet to this day.
Betting with an Exchange
The premise behind a betting exchange is simple enough, and their appeal intrigues many individuals who can take on the role of bookmaker as well as punter.
You can ‘back’ a selection in the way you normally would, e.g. back Manchester City to win the Premier League title at the odds provided by another punter on the exchange, which would typically be more generous than those presented by the sportsbooks.
And you also ‘lay’ selections, which essentially means you are betting on something NOT to happen.
So, in the Premier League Winner market, you could lay £10 that Arsenal won’t win the title at odds of 20/1. If the Gunners don’t finish top of the pile, you would trouser £10 in profit and get your stake back.
But if Arsenal did win the title, you would have to pay out £200 to your matched punter: £10 x 20/1.
Betting exchanges rely on two parties – backers and layers – to set prices and make wagers against one another, and the only output they take is a small commission on winning bets. You can find the commission levels, which can change readily, set by Betfair Exchange, Matchbook, Smarkets and other brands with a simple internet search.
Advantages of Betting Exchanges
The main advantage of betting exchanges is that you have complete freedom over your bets. You can accept the prices offered, or request different odds and see if you are ‘matched’ by an opposing backer or layer.
And you might think this is a small matter, but consider these odds differences: with the bookmakers, Manchester United are 13/2 (6.50) to win the 2018/19 Premier League. And yet with the exchanges you can back them at 8.00.
That theory becomes even more appealing in longer odds markets. Take the prices for the Open Championship 2018: Rory McIlroy (17.00 with the bookies, 21.00 with the exchanges), Tiger Woods (26.00 vs 30.00), Sergio Garcia (29.00 vs 34.00), Paul Casey (41.00 vs 50.00), Phil Mickelson (61.00 vs 75.00) and Bubba Watson (81.00 vs 101.00) would all yield significantly higher returns for punters on the exchanges than with the bookies.
Consider the effect of this over a year’s worth of betting, and you can imagine how much more profit is available on the exchanges.
Of course, you never see a poor bookmaker down on their luck, do you? These all have multi-million pound turnovers and offices in countries all over the world, and there’s a reason for that: they take money from ill-informed punters or those placing ridiculous 15-team accumulators on a Saturday afternoon.
Via the betting exchanges, you can take on the role of the bookie by laying selections and cashing in on backers who haven’t researched a betting market as thoroughly as you have.
Finally, if you are canny you can also take advantage of a betting strategy known as ‘back to lay’.
This, in a nutshell, is a method of locking in profit by laying back some of your potential return. So picture the scene: you’ve slipped £10 on Paul Casey to win the 2018 Open Championship at 50.00, giving you a prospective return of £500 should he come up with the goods.
Imagine Casey is leading with a round to play, and his live back/lay odds are into, say, 5/1. Now, you could lay back your original £10 stake, meaning that you have essentially a free bet to run on the Englishman that could yield a net return of £450 (£500 back profit – £50 lay loss).
Disadvantages of Betting Exchanges
It takes two to tango, and betting exchanges only work where there are two parties willing to back and lay one another’s selections at the odds requested.
This is known as liquidity, and some markets on the exchanges are more ‘liquid’ than others.
So, if you were to have a flutter on the Premier League Winner market, you can almost guarantee that your wager would be matched: this is a supremely popular betting market after all.
But if you want to bet on a Hungarian Second Division match, for example, you may find a backer/layer to partner with hard to come by. In this instance, betting with the bookies would be a better option.
The success, or otherwise, of betting exchanges is ultimately about liquidity; without it, an exchange has little to offer their punters.
Written by Craig Simpkin
A sports journalist with a smorgasbord of experience writing for a variety of publications, Craig is a Leicester fan hoping that England can also achieve the impossible this summer.