Since their creation back in 1999, betting exchanges have had a major influence on the betting industry. They offer the gambler far more flexibility and value than traditional bookmakers. They allow you to trade bets like you would trade on the stock market and allow you to lock in a profit before an event has even taken place. This is a popular technique called matched betting and it’s one of the best ways to make money online.
Betting exchanges have facilitated matched betting and are one of the key ingredients to making a risk free, tax free profit online. Therefore, it’s vital for matched bettors to understand betting exchanges inside out. That’s why we’ve created this introductory guide.
What is a Betting Exchange?
A betting exchange is an online platform that matches gamblers looking to place bets against each other. In essence, a betting exchange allows the punter to act as a traditional bookmaker would.
If Punter A wants to back Chelsea to win, Punter B can back Chelsea NOT to win, an option that was’t available before betting exchanges were around.
This has brought a lot of controversy into the betting industry which we’ll come onto later.
Different Business Models
Bookmakers generate revenue by offering less efficient odds. They build their margins into the odds in the first place. Betting exchanges generate revenue by taking a commission on players net winnings. Therefore, they can offer the true market price and usually at better odds than bookmakers. This means a potentially higher payout for gamblers and ultimately more value.
The betting exchange business model involves no risk like a traditional bookmaker. They make money whatever the outcome of an event. There are also far less overheads, no physical shops, less staff required. The list goes on. You’re probably starting to see why betting exchanges are so popular within the industry.
History of Betting Exchanges
The first betting exchange, Betfair, was founded in May 1999 and completely changed the way the betting industry functioned. Since then, there have been a number of competitors enter the marketplace, Betdaq and Smarkets being the main two.
However, until recently, Betfair has remained the most popular and the biggest betting exchange out there. They are now facing increasing competition from Smarkets in particular as they continue to grow and bring a distinctive approach to the industry.
Back and Lay Betting
At a betting exchange, you can back (buy) an outcome like you would at a traditional betting shop or you can lay (sell) an outcome. The latter is pivotal to making money with matched betting.
What is Back Betting?
Back betting is the most common and popular type of betting. This is the concept traditional bookmakers are built around. With a back bet, you are betting on an outcome to happen, Chelsea beating Leicester for example.
Let’s say you want to stake £20 at odds of 2/1 (3.0 in decimal format) on Chelsea to win.
If Chelsea did beat Leicester, you’d win £40 from your bet and you’d also get your stake of £20 back. Overall, the bookmaker will return £60. If you lost the bet, the bookmaker would keep your £20 stake: