Beginner's Guide to Betting Exchanges

Betting exchanges can be a great alternative to traditional online betting sites offered by bookmakers, as they offer a unique experience and often present better odds. As a result, exchanges are steadily gaining in popularity for sports betting.

Despite the upsides, some bettors are steering clear of exchanges as the concept and layout seems too complex.

So, to help you out, today we're going to dispel some of the myths about betting exchanges, explain exactly how they work and exactly how to use them.

What is a betting exchange?

A betting exchange is a sportsbook where you can place bets just like a traditional sportsbook, but in this case, there is no 'house' you are betting against.

A betting exchange uses a system that allows bettors to place bets against each other. This means the odds are generated from the supply and demand of the bettors - unlike traditional sportsbooks, where bookmakers decide the odds themselves.

This means that there are two kinds of players involved in any bet made on an exchange. One who is placing a 'Back Bet' and one placing a 'Lay Bet'.

What is a Back Bet?

Backing a bet on an exchange is the same as doing so with a traditional sportsbook.

It simply involves selecting an outcome and deciding a stake.

What is a Lay Bet?

To put it simply, placing a lay bet is betting against a certain outcome occurring.

How do you place bets on a betting exchange?

When looking for a game or event to wager on betting exchanges, you will see two colour coded columns. One will represent the lay bet and the other will represent the back bet. These colours may vary between sites, but Betfair Exchange uses blue for backing a bet and pink for laying a bet.

Let's say you wanted to bet against Arsenal winning the match.

You would head to the exchange, select the lay bet on Arsenal and set your stake.

Now, in a way, when you're laying a bet, you're acting as the bookmaker. So, when you enter your stake, this is the amount you're willing to accept as a bet. If the outcome is in your favour, this is the amount you will win.

For example, if you set your lay bet stake at $10 against Arsenal - if they lose or draw, you'll receive $10.

However, if they win the match, you are liable to pay out winnings.

Let's say the lay bet odds for Arsenal were +200 (3.0 or 2/1). Now, given the back bet winnings are covered by lay bettors you would be responsible for paying the back bettors profits of $20.

This amount is known as your liability.

An exchange will only allow you to place a bet if your account can cover the liability, which will always be shown to you before it accepts your stake.

There are options to place lay bets at odds away from the given market value, though there is no guarantee your stake will be backed. If you want to ensure your bet is backed, I would recommend sticking to the given market odds, or at least not stray too far from them.

Exchanges vs Traditional Sportsbooks

A big difference between a traditional bookmaker and an exchange is the ability to place lay bets. But besides this is the disparity between the odds due to the two different betting systems.

Most sportsbooks will factor in their need to make profits to determine the odds. This means players can make larger profits on the same bets.

It can also be easier to place large bets on exchanges, as soon bookmakers may refuse the stakes, but on exchanges, if the bet is covered by the other side and you have covered your liability, the stake will accept no matter what.

One drawback of an exchange can be the lack of available markets.

For smaller markets, like unusual sport, unique events and very specific prop bets, there may not be enough interest from exchange bettors to guarantee availability.

More importantly, even if the smaller markets are available, there is no guarantee that someone will back your lay bet.

Another downside of exchanges is the inability to place accumulator bets.

Most betting exchanges will not offer a parlay betting service, so if you want to place a bet with multiple legs, you will need to use a traditional sportsbook.

How do betting exchanges make money?

Now, you may be asking yourself, if there is no house to bet against and each side of the lay and back bets cover each other's profits, then how does an exchange make any money?

Betting exchanges make most of their money from taking a small commission on bettor winnings. The exact amount varies between exchanges, but it is generally between 2% and 5%. This is similar to the process of poker rooms taking rake for providing a safe and secure betting experience.

Remember to factor in the exchange's commission when you place back bets. You should consider your net profits after the commission would be taken from winnings. It is often the case that the odds are so much better, that your winnings will still be greater from exchanges compared to regular sportsbooks.