How Does a Betting Exchange Work?

Nowadays there are a fair few betting exchange sites around but the founding father and still the clear market leader is the Betfair trading and betting exchange.

The Betfair exchange made its debut in June 2000 and when it did, it was revolutionary. But what is the Betfair Exchange, how does it differ from the Smarkets Exchange and its own sportsbook?

Betfair did not add a sportsbook to its armoury until 2012, in fact it had an online casino beforehand (introduced in 2008) but both are very different to the Betfair sports betting exchange and it is best you cast aside all knowledge of those two instruments when trying to understand how betting exchanges work.

Think Old Meets New

In fact, when trying to understand the workings of a betting exchange it is probably best to think along the lines of an old-fashioned on-course bookmaker. That’s quite apt as Betfair exchange horse racing was the only option available to people back in the year 2000.

It is also ironic as, like the London Stock Exchange which went from open-outcry to electronic screen-based trading in October 1986, on-course bookmakers were quickly forced to ‘go electric’ when Betfair formed as, like stock market traders of yesteryear, their entire business was turned upside down.

The Betfair betting exchange simply works like a stock market where stock can be bought and sold. Unlike a conventional stock exchange, the commodity is odds about an outcome of an event (and not commodities such as precious metals and currencies).

Back or Lay

Betting exchanges allow you to play the role of bookmaker. You can log-in and ‘lay’ bets on anything you wish to oppose (not to win). Chelsea against Liverpool in a Betfair exchange football market for example, or Trap 6 in the 4.27pm greyhound race at Monmore Green.

You can do this by clicking on tab alongside your selection in the pink ‘lay’ column. It is very simple and in the example below you can ‘lay’ up to £11 on the favourite (Young American) at odds of 3.60 which is around 5/2. Alternatively, you could back it to win at 3.55 by clicking it in the blue or ‘back’ column.

Betting on an exchange really is that simple but mastering exchange betting is something of an art form.

How Does Betting Exchange work

Arbitrage and Trading

The beauty of Betfair exchange betting is the ability to make money regardless of the outcome of the race or game which you trading. To explain… the best exchange players do not bet (either backing or opposing) a selection to win money. They speculate on market moves and make their money on correctly identifying which way the market will move.

A £/€100 ‘trade’ placed on a horse at odds of 2.50 (6/4) would yield a £/€150 profit if it wins. But there is a total loss if it loses. But a shrewd exchange player will manage to both back and lay this favourite meaning either its victory or defeat will still result in a profit.

His modus operandi would be to back the selection at a pre-contest trading high of 2.64 (yielding a potential £/€164 profit) and also lay the same selection at 2.10 (a possible trading price low) for £/€130 meaning a £/€143 loss.

Here’s how that will work out at settlement time:

Selection wins:
Profit on win bet: £/€164 profit
Losses on lay bet: £/€143 loss
Clear profit: £/€21

Selection loses:
Losses on win bet: £/€100 loss
Profits on lay bet: £/€130 win
Clear profit: £/€30

Betfair Exchange Tips

We believe this trading is the best way to use Betfair exchange albeit from a betting only viewpoint it must be pointed out the exchange does offer the best odds about most sports and selections much of the time.

But opportunities arise the remainder of the time and that is another money maker called ‘arbitrage’ whereby you can back something at a fixed price elsewhere, say 4/1 at Ladbrokes or William Hill, but lay it to lose at 7/2 on the Betfair Exchange. Once again this is a money-making proposition.

Many opportunities often arise but never forget this is a volatile betting platform and with prices moving constantly, particularly ‘in play’ during a horse race, you need to show plenty of discipline and restraint plus have a clear-cut game plan before trying your hand at exchange trading.