What is Betting Exchange & How Does It Work

Betting exchanges can be a very useful way to do your betting, the latest Freebets.com academy article is aimed at helping beginners who are new to exchange betting

From my experience of working with the Betfair education department, I know that betting exchanges are not easy for traditional punters to understand BUT that is what we are here for. At the Freebets Betting Academy we intend to cover everything you will ever need to know about betting on the exchanges. This is the first of many articles we will be producing on the subject.

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What is a Betting Exchange

We first seen betting exchanges at the turn of the century and they have revolutionised the way people gamble. The first betting exchange was Betfair.com which was founded in 2000 by Andrew (Bert) Black and Ed Wray. Their concept was to produce a “stock exchange” like platform for sports betting and almost from day one it was a winner with the betting public. However, at first glance a betting exchange website can appear complicated so we are going back to basics to explain exactly how it works. Basically, a betting exchange operates as a “middle man” allowing you to place bets against other punters rather than a bookmaker. An exchange allows you to place both “BACK” and “LAY” bets, lock in guaranteed profits as an event unfolds and if you don’t like the odds available at the bookmakers in an exchange you can even set your own odds.

The first thing you will notice as a “traditional” punter is that a betting exchange operates purely in decimal odds. There two main reasons for this:

• They are far simpler to work out, not everyone knows the difference between 5/2, 6/4 or 6/5 but with decimals the bigger the number the better the price for the backer.
• Every time a price moves there is an opportunity to lock in a profit. A bookmaker may cut a price from 7/4 to 6/4 but in decimal terms that is 2.74 to 2.5 or to an exchange trader a 12 tick move and huge opportunity to make money!

How Do Betting Exchanges Make Money?

One thing that is important when using exchanges is understanding HOW they make their money, Exchanges make money when you win a bet, they do this by charging a commission (normally between 2 and 5%) on your winnings. The benefit of doing this means that exchange books are priced to 100%, meaning you will very often find the best price in an exchange as the markets are very competitive with no margin required.

Below is an example of what Betfair’s match odds market looks like with an explanation of what it all means for a Man Utd game.

Of course there is some new “terminology” that the traditional punter may not recognise and it can look “overpowering” to the novice BUT I can assure you there is nothing on that screen that should intimidate you and within hours of using an exchange you will probably not even notice it anymore.

Betting Exchange – Betting Terms

But let’s run through some of the new terms:-

Matched / Unmatched Bet

When you bet with a bookmaker your bet is immediately accepted at the odds he has offered you. In an exchange you need to have your bet matched with another user, but that is exactly what the betting grid shows you – in the example above you can back Manchester United at 1.96 and you will be immediately matched up to a stake size of £1391. This is because the grid is telling you that the platform has this amount of unmatched funds waiting for backers at that price. Of course the market is constantly moving so you need to make sure you are matched before your bet is accepted.

Back Betting

Is no different to what you would do at your bookmakers, you pick your selection and enter your stakes as long as you have sufficient funds in your account the bet will be submitted to the exchange and matched if the price and amount is available or it will sit unmatched until someone with an opposing view to you matches your bet.

Lay Betting

Is where some people get confused. Basically, you are betting AGAINST that selection winning. Let’s say we don’t think that Arsenal will win this game and we want to win £10 if they don’t – well we could do the maths and calculate how much we need to place on backing the draw and Manchester United OR we could just lay Arsenal at 4.6. In order to do that we would need £36 in our exchange account to place that bet. The reason you need £36 to win £10 is because you are now the bookmaker – you have laid someone £10 at 3.6/1 that Arsenal won’t win the game, so you have to have sufficient funds in your exchange account to cover the liability if they do. Of course if the game ends as a Manchester United win or a draw then you win the £10 stake.

Market Depth

With a bookmaker a football team are a fixed price to win the game. In an exchange as people can request their own prices they would like to back or lay a team at this creates many prices that a selection can be matched at. The Market Depth just shows you all the prices and the amounts available waiting to be matched, allowing the exchange user to assess the price.

If you haven’t signed up to a betting exchange yet then I would encourage you to check out the freebet links to exchanges like Betfair and Betdaq – where you can use the signup promotions to start learning how to use these platforms. As with everything in betting, especially when you are new to it, start with minimum stakes until you are more comfortable and confident that you know exactly what is happening!