Betting Exchanges – An Overview

Introduction

The traditional world of betting includes you, the punter, betting against odds set by a bookmaker. This setup is designed to almost always favor the Bookmakers since they are the ones who control the odds against which, you, the punter are forced to play.

The sheer difference in the number of punters vs bookmakers in any event, almost always makes it a winning game for the bookmakers – no matter the Odds, the house always wins. While this is the accepted system that governs the industry, a recent disruption in the market is trying to shake things up a bit in the favor of the punters. This new disruption is called the Betting Exchange.

A betting exchange is a marketplace made for punters, where they can place bets against each other rather than against a traditional bookmaker.

In a Betting exchange, a punter can essentially choose their role in the game. They can choose to become a bookmaker by setting their own Odds for a match if they wish to. Or they can simply choose to play as a punter, by playing against the Odds set by other users playing as bookmakers on the exchange platform. This allows for a peer-to-peer network of punters that eliminates the need for a Bookmaker. In this blog, we will take a look at how Betting Exchanges work, who the key players in the scene are, and what the are some key terminologies that one needs to be aware of. We will also look at some of the advantages and disadvantages that this new paradigm of Sports betting brings with it.

Overview

Getting into the specifics, a Betting Exchange essentially operates on the back of two forms of Bets – A Back Bet and a Lay Bet. Users can participate by either Backing or Laying a bet. Users are allowed to declare their own Odds.

If a Lay bet from one user is Backed by another user, it is called a Match. Two users can Bet against each other as their desired Odds only once a Match is declared. This allows punters on the exchange to bet against each other without a bookmaker controlling the Odds.

Let’s look at these concepts in more detail.

What is a Back Bet?

To Back a Bet implies placing a bet on a team or a player on the Odds of Winning. This basically means that you are playing as any regular punter would who is betting on an outcome to occur against an Odd.

This is akin to a traditional punter placing their bets in a traditional setup. You want to place a bet. You can see the Odds available on the betting platform (setup by the platform’s bookmaker). You place it against the available Odds.

Backing a bet is playing a similar game, i.e., assuming the role of a punter and betting on the Odds of a WIN.

What is a Lay Bet?

To Lay a Bet implies placing a bet on a team or player on the Odds of them Not Winning, i.e., chances of a draw or loss. When you Lay a bet, it basically means that you are playing as a bookmaker who is betting against the Odds on an outcome to NOT occur.

An analogy of this in a traditional betting platform will be the bookmaker. Whenever you place a bet on a traditional betting platform, you bet against the Odds set by the bookmaker. You only succeed if you WIN. However, from the bookmaker’s viewpoint, they win when you do not WIN.

Laying a bet is playing a similar game, i.e., assuming the role of a bookmaker and betting on the Odds of a DRAW or LOSS.

Setting Up New Odds?

Betting exchanges also allow you to Set your own Odds. You can ask the exchange to set up your own Odds by telling the Bet Exchange that you are willing to back your Bet at the Odds of your choice. The Bet Exchange then waits for another exchange user to ‘Lay’ a bet against your new odds. As soon as someone else chooses to Lay your Odds, a Match is declared.

How is a Match Declared?

Inside a Betting Exchange, everybody has the freedom to declare their own Odds. This, however, does not mean that every Odd guarantees a play. In order for a Bet to be valid against an Odd, the exchange requires another player to play against the Odd.

In Betting Exchange terms, once you Back a bet, the betting exchange platform waits for another user in the exchange to Match your Bet. Your Bet is considered a match, only if another User in the exchange is ready to Lay a Bet on the Bet that you Back.

Bypassing the Bookmakers?

This feature of the Betting Exchange, which allows the users to set up their own Odds, Back their bets against an Odd, or Lay their bets against a ‘Backed’ bet essentially allows the Exchanges to create a peer-to-peer network, that is entirely controlled by the punters, thus, eliminating the need of any bookmaker in between.

The platforms that provide these exchanges, however, do charge punters a small percentage of their winnings as a platform fee – which is typically around 2-5%.

Cricket Betting Exchange

Source : https://cricketexpert.net/betting-exchange-sites/cricket-betting-exchanges/

Example

Let us now look at a simple example to understand how all the logic and terminology discussed above play out in the real world. Let’s say you’re interested in a football match between Liverpool and Arsenal.-

• User A thinks Liverpool will win. They place a back bet of $10 on Liverpool at odds of 2.0 (or even). If the exchange is not offering the Odds of 2.0 at the moment, the user can choose to set up their own odds at 2.0.
• User B believes Liverpool will not win (meaning Arsenal will either win or it will be a draw). User B decides to place a lay bet of $10 on Liverpool at the same odds of 2.0.

A match is declared.

Result and Outcomes

If Liverpool wins:

• User A receives $20 (their initial stake of $10 multiplied by the odds of 2.0).
• User B loses their $10 stake, as they laid the bet against Liverpool winning.

If Liverpool loses or draws:

• User A loses its $10 stake.
• User B receives $10 (the stake they laid) and wins the bet.

Advantages

Better Odds

Since the exchange does not need to build a profit margin into the Odds and offer flexibility to users to set up their own Odds, bettors often find better value odds compared to traditional bookmakers.

Ability to Lay Bets

Bettors can act as the bookmakers and ‘Lay’ bets. This is useful for strategies like arbitrage or trading positions during live events.

Market Transparency

Betting exchanges often provide greater transparency, showing the amount of money available to ‘Back’ or ‘Lay’ at different odds.

Trading Opportunities

Similar to financial markets, bettors can trade their positions to lock in profits or cut losses during the event. This can be done by backing and laying the same outcome at different times.

Disadvantages

Un-Matched Bets

On a popular betting exchange, you can always find someone to ‘Lay’ a bet that you ‘Back’. But if you’re trying to bet obscure sports or bet types, your bet may not always get matched. In such cases, although your bets are refunded, but you also lose your chance to play.

No Promotions

Betting exchanges don’t offer the same Offers and Promotions that traditional sportsbooks do to their punters to increase traction

Conclusion

Betting exchanges offer a dynamic and competitive betting environment, allowing for greater flexibility and potentially better odds. This model empowers users to engage directly with each other, making it a popular choice among experienced bettors looking for enhanced value and strategies.

Over a period of time multiple bet exchanges have taken over the betting market. Some of the major players are Betfair, Betdaq, Smarkets, Matchbook, etc. Bet exchanges are also getting adopted by some new geographical regions, like India, where betting in general is largely partially legal. We will take a deeper dive into these companies and geographies in the future edition.

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