Explanation of Exchange Betting

Exchange betting is a form of betting that removes the need for a bookmaker, by allowing individuals to place wagers with each other. While traditional sports betting with a bookmaker is still commonplace, the use of betting exchanges has become increasingly popular since they were first introduced online around the start of the 21st century.

In this article we explain how exchange betting differs from traditional sports betting, and look at how betting exchanges work. We also discuss the main advantages of placing wagers in this way.

Exchange Betting vs Traditional Sports Betting

The basic concept of exchange betting is very straightforward. It's similar to traditional sports betting in many ways, as you are still risking money on the outcome of an event, but there are a couple of major differences.

The first major difference is that there is no bookmaker involved. Instead, any wagers you place are with other bettors. On a betting exchange you have two main options: You can accept wagers that are being offered by others, at odds they have chosen, or propose wagers for others to accept, and set the odds yourself. We look at the mechanics of how wagers are agreed and settled later in this article.

The second major difference is that you have the choice between backing selections and laying them. Backing a selection means you are betting on it to win, while laying a selection means you are betting on it to lose. It is not usually possible to lay selections with bookmakers, so this opens up a whole new range of betting opportunities. You can make money from accurately predicting who won't win an event, as an alternative to predicting who will.

The only other real difference between the two forms of betting is in how you actually place your wagers. We'll now explain how betting exchanges work in this regard.

The Mechanics of Betting Exchanges

Exchange betting is facilitated by betting exchanges, which are basically websites where you can propose any wagers you wish to place and see the wagers being proposed by others. The different exchanges on the web all look different, as they use their own software platforms, but they all work in pretty much the same way.

Before you can use an exchange you will have to open an account and deposit some funds, in the same way you would when using an online bookmaker. You will then be able to access all the open betting markets, on various sports events, and propose or accept wagers.

The following screenshot is from an online betting exchange, and it shows a few selections from an open market on a golf tournament.

Exchange Betting Example

The blue column shows the best available odds if you wish to back the relevant selection. The monetary value shown is how much you can stake at those odds, based on the wagers currently proposed by others. So if you wanted to back Rory McIlroy at odds of 5.90 you could place a maximum stake of £125. You could also place any amount less than this.

If you chose to place the maximum stake then £125 would be deducted from your account. If McIlroy went on to win the tournament, you would receive a total return of£737.50 including your stake. If he didn't, you would lose your £125 stake.

The pink column shows the best available odds if you wish to lay the relevant selection, along with how much someone is prepared to bet at those odds. If you wanted to bet against Tiger Woods winning, you could lay a £30 wager (or any amount less than that) at odds of 16.5.

If you chose to lay the full £30, then your total potential liability would be deducted from your account. In this case the total liability is £465, as that is how much a £30 wager at odds of 16.5 would win. When you are laying a selection, you have to pay out at the agreed odds if that selection wins. If the selection does not win, then you get credited with the initial stake. This would be £30 in this example. You potential liability that had been previously deducted from your account would also be credited back.

The columns to the left of the blue column in the screenshot show other options for backing at lower odds, and the relative amounts you can bet. The columns to the right of the pink column show other options for laying at higher odds, and the relative amounts you can lay. Remember, when laying you want odds to be lower rather than higher, as your liability increases with higher odds.

If you didn't wish to back or lay at the odds on offer, or if you wanted to stake more than was on offer, then you would have to propose your own wager. You would have to decide upon your chosen selection, the odds you want to set, and how much you wish to risk. Other users of the site would then have the option to accept your proposed wager.

Advantages of Exchange Betting

The single biggest advantage of exchange betting is one that we have already mentioned – the ability to lay as well as back. This creates opportunities for making money that you simply don't have with a traditional bookmaker. In many circumstances it is a lot easier to find a winning wager when laying a selection to lose, than it is when backing a selection to win.

Another very significant advantage is that when backing selections on exchanges you will very often get noticeably better odds than you would if using a bookmaker. If you are placing wagers regularly, and winning a decent percentage of them, then the improved odds can make a huge difference to your overall returns.

The final main advantage of using exchanges is a big one for sharp bettors who consistently make money. The exchanges make their money by taking a small commission on all winning bets, so it doesn't matter to them who is winning and who is losing. A bookmaker, on the other hand, will lose money to a skilled bettor, and it is not uncommon for them to close or limit the accounts of regular winners. This will not happen at an exchange.

There are a couple of disadvantages of using exchanges too, but they are fairly minor. The biggest drawback is that you may not always be able to stake as much as you want on a particular selection if no-one is willing to take the opposing position. This is unlikely to be a major problem though, unless you are looking to regularly stake very large amounts.

It's unlikely that exchange betting will ever replace traditional sports betting, as bookmakers will always have a role to play. It is a great alternative though, and one that many bettors would benefit from using.