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Betting.net / Betting Guide / What is a Betting Exchange? Exchange Betting Explained 2024

What is a Betting Exchange? Exchange Betting Explained 2024

Publish Date: June 24, 2021
Fact checked by: Jesse M Cox

To trade or not to trade? Here’s a list of reasons why you should be using a betting exchange

When exploring online for betting strategies, you won’t get far before you find mention of something called betting exchanges. While their websites look a lot like what you see from a bookmaker or sportsbook, they are clearly not the same.

That is because a betting exchange offers other bets you won’t find at a bookie, and they are central to one of the most popular betting strategies a new bettor can profit from. So, we have put this guide together for anyone who wants to make a betting exchange their destination, but is wondering exactly how do betting exchanges work?

A betting exchange explained – how do betting exchanges work?

As mentioned above, when you arrive at a betting exchange for the first time, it would be easy to mistake a betting exchange for a sportsbook website. However, there are two fundamental differences. Firstly, on a betting exchange users do not bet against the bookmaker, they bet against each other. Secondly, at a betting exchange you are able to place a wager on something not happening.

For instance, in a soccer game you can bet on the home team winning, the away team winning or a draw. This is straight a 1×2 bet (1×2 betting explained elsewhere on Betting.net) and one you are most likely familiar with. When you use a betting exchange, as well as all of these bets you are also able to bet on the home team not winning, the away team not winning or the draw not happening.

So in practice, if you placed a wager on the away team not winning, if the home team won or there was a draw, your bet would be successful. Betting that something will happen is known as ‘backing’ and betting that something won’t happen is called ‘laying’, in case you were wondering how does a lay bet work?

A betting exchange explained – how do you find a betting exchange?

Betting exchanges are most commonly found in the UK (although, like many UK bookmakers are licensed in Malta) and, as you may have seen on your travels online, are currently not available to bettors in the USA. However, US bettors might recognise the brand name of the biggest betting exchange Betfair, from their sportsbook activities in US states like Nevada and New Jersey.

Other betting exchanges in widespread use in the UK include Smarkets and Betdaq, who offer a similar journey for visitors but can vary from each other in the number of markets they offer and the commission structure applied to winning wagers (more on that later).

Betting exchanges became a popular destination in the early 2000s when peer to peer betting offered a viable alternative to placing a bet with a bookmaker, especially when many online sportsbook sites were in the early stages of development and looked nothing like what we would be used to seeing today. It was during this time that the use of betting exchanges in trading strategies became more common because of the ability to back and lay.

A betting exchange explained – how do betting exchanges work with matched betting?

One of the first times bettors will encounter a betting exchange on their journey is likely to be while following a matched betting strategy. As you may have already realized, the ability to bet something will happen (backing) and that something won’t happen (laying) allows you to cover all outcomes.

You will also have realised that simply doing that will mean that the two bets cancel each other out, and no profit can be made. However, there are circumstances under which this can work, due to other factors. One of these is timing, which we will look at shortly, and the other which is used in matched betting involves bookmakers bonuses.

How do betting exchanges work with bookmakers bonuses?

Even the quickest internet search will show you a range of welcome bonuses on offer from online bookmakers and sportsbooks. These will usually involve a deposit match or a number of free bets for anyone opening an account and making a deposit big enough to qualify them for the bonus.

Activating this bonus will usually involve placing either a single or number of qualifying bets. For instance, if the offer is bet 10, get 20 in free bets, you would have to place the first bet to benefit from the free bets. If you place a bet with a bookmaker, and the converse bet with a betting exchange, this bet is theoretically risk free – and while you will not make a profit so far, you will have unlocked the free bets.

How do betting exchanges work with using your free bets for a profit?

One key factor of free bets is that the stake is not returned, so if you successfully placed your free bet of 20 at even odds, instead of ending up with 40, you’d just have the 20 you ‘won’. This might sound complicated, and to new bettors it might well be and need each system bet explained, so if is the case you can use a betting calculator to make sure you place your free bets and lay them off at the right amount to ensure you end up with a profit at either the bookmaker or the betting exchange.

This often doesn’t make sense until you’ve seen it in practice, and once the concept has been grasped, it can be repeated as you make other bookmakers who are offering free bonuses for signing up your destination. Clearly, bookmakers are aware this happens, so the requirements for a bonus have become harder to meet, making the journey more difficult, especially in the last five years.

However, this is not a dealbreaker as it is a popular way for students and stay at home parents to make extra money in their spare time.

A betting exchange explained – how do betting exchanges work with arbitrage?

The principle of buying and then selling the same thing for a profit shortly afterwards is a simple concept we can all understand, and in certain circumstances it is possible to do this with bets before the event has taken place. This is made possible between a sizable discrepancy in odds between a bookmaker and a betting exchange.

For instance (and using decimal odds for easy reference) if a horse is priced at 5 at bookmakers, but you can lay the same horse at 3 on a betting exchange, you have both outcomes covered for a guaranteed profit. This is a simplistic example as differences of this size are few and far between.

In reality, the margins are much smaller and can often involve working very quickly to secure the trade, as prices move all of the time, especially where there is an obvious discrepancy. Arbitrage is a big draw for sports traders with software used to spot discrepancies that can be exploited. When working out if a trade is viable however, traders need to calculate their margins while factoring in the commission charged by the betting exchange.

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A betting exchange explained – how do betting exchanges make their money?

While it is easy to see how bookmakers make a profit, it is not quite as obvious how the exchange makes money from peer-to-peer betting. Betting exchanges follow a similar model to eBay, the peer to peer selling site (which Betfair was often likened to in early analogies) where any item sold incurred a commission.

With betting exchanges, a commission is charged on the amount of profit made on a transaction. Of course, there is no commission payable if your wager loses. The amount of commission charged will vary between betting exchanges and is typically the main point of competition between them when looking for your custom.

How do betting exchanges work with charging commissions?

As previously mentioned, the betting exchanges in the UK that are regarded as the most popular are Betfair, Smarkets and Betdaq. Betfair has traditionally had the lion’s share of business, and the greatest amount of liquidity (more on that next) which might make you wonder where the other exchanges might fit in.

For many years, Betfair charged a 5% commission which only dropped to those who used the exchange a great deal. For this reason other exchanges have tried to undercut Betfair, with the Smarkets 2% rate for instance. However, this has levelled out more recently, in both commission rates and the number of users on each site.

How do betting exchanges work with market liquidity?

One of the key factors with peer-to-peer betting is that for you to make a bet at certain odds, there needs to be somebody who is willing to take it. The amount of money in any particular market to facilitate betting is known as liquidity, and is typically greater the more people use the betting exchange.

This meant that Betfair was for many years the ‘go-to’ betting exchange both among new bettors who are just starting out, and those more experienced users who do not need to be shown an Asian handicap example to understand how certain bets works.

This is because they had the greatest liquidity in more markets than their competitors, however the playing field is regarded as more level, and there is currently much more freedom for the bettor or trader when looking to use a betting exchange.

A betting exchange explained – other betting strategies to make you a more savvy bettor

Of course, matched betting and arbitrage might be popular, but they are far from the only strategies available. There are other strategies that can be found on the online betting guide sections of the Betting.net website, where you will find many more resources that could help turn you into a smarter bettor.

Conclusion – three tips to take with you

By now the question of ‘how do betting exchanges work?’ should be answered. To wrap it all up, there are three things the savvy bettor needs to take away with them to use this information to the greatest advantage.

First of all, keep in mind that betting exchanges differ from bookmakers and sportsbook sites because they are peer to peer betting platforms where users effectively bet against each other (although it is all done anonymously). And how betting exchange works can allow more flexibility for the user and the odds are driven by user demand and not by a bookmaker.

Secondly, you can both back and lay at a betting exchange, which means you can use betting exchanges as part of a betting strategy such as matched betting or arbitrage to, if successful, make a profit that is not dependent on the outcome of the event being wagered upon.

Last of all, betting exchanges have turned sports trading into a huge industry of its own, with many strategies used for making a profit, and believed to make up a significant part of a betting exchanges turnover, and thousands of people participating in the activity every day.

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Betting exchange explained FAQ

❔ How do betting exchanges work?

Betting exchanges can look a lot like the bookmaker or sportsbook sites you see elsewhere, but they have some very significant differences. To discover exactly how a betting exchange works and the benefits and advantages this offers to both new and experienced bettors, check out the comprehensive guide at Betting.net

✔️ Are betting exchanges legit?

Betting exchanges are popular with both new and experienced bettors who want to take advantage of the extra services offered that are not available with a bookmaker or a sportsbook. You can find out how trustworthy  betting exchanges are, and how they work by referring to the information at Betting.net

🤑 Can I make money with a betting exchange

While a profit is never guaranteed, the way that betting exchanges work have provided the opportunity for some interesting betting strategies to be developed. To find you how betting exchanges work and the betting systems that can be used with them, make Betting.net your destination.

💭 Are betting exchanges available in the US?

Betting exchanges are particularly popular in the UK and are used by many people who want to benefit from the services they offer that aren’t available from a bookmaker or sportsbook. To discover if you can access a betting exchange from where you are, check out the insightful guide over at Betting.net

💰 Do betting exchanges payout

Betting exchanges look a lot like a bookmaker or sportsbook website, so you might expect them to payout in the same way as those other sites. However betting exchanges work differently to sportsbooks and bookmakers, and to see how they work, including how they payout, check out the free information right here.

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