Betting Exchanges

Betting exchanges are like any other exchanges: Places where objects can be bought and sold, contracts made. You don?t bet against the exchange, like betting against a bookmaker, you bet against other users of the exchange.

The terminology may sometimes be a bit different, but the basic principles are just as at financial exchanges. And as financial exchanges have proven to be efficient mechanisms for trading shares, options, and other kinds of securities, so have the betting exchanges proven successful in the world of online betting.

When you log on to a betting exchange, you?ll see a set of odds and volumes. They represent betting offers put up by other members of the exchange. Here?s a typical situation, representing the market for Brazil to win the World Cup:

You can back Brazil to win at odds 4.80 and at most with EUR 1,000. This means that other exchange members are offering odds 4.80 to you, each with some amount, totalling EUR 1,000.

If you want to bet for Brazil, 4.80 is thus the best price you can get at the moment. If you bet EUR 200 at these odds, your bet will immediately be matched, and you?re on! You can place a betting offer at higher odds, for instance stating that you want to bet EUR 200 at odds 4.90. That offer will then stay at the exchange until, possibly, someone takes you up on it.

When the EUR 200 bet at 4.80 was matched, the EUR 200 was locked at your account. If Brazil go on to become World champions, then you?ll get them back plus receive the profit of your bet. EUR 200 x (4.80 ? 1) = EUR 760. If not, you?ve lost the bet and the EUR 200 is paid to the counterparty at the exchange.

The exchange is not counterparty to your bet. They don?t care if you win or lose. What they provide is an efficient and anonymous mechanism for entering and matching betting offers and a mechanism to ensure, that you get paid. When you enter a bet with someone, their potential loss from the bet will be taken from their account at the exchange and held by the exchange until the bet is settled in order to guarantee that they can pay winnings to you.

You?ll see that there are offers for you to back Brazil both at 4.80 and at 4.70. Assume that you want to bet a total of EUR 2,000 for Brazil. You can then place EUR 1,000 at 4.80 and EUR 1,000 at 4.70. In total, you placed EUR 2,000 and got average odds of 4.75.

Sometimes, the volume at the best price is quite low. For this reason it?s good to know what the 2nd and 3rd best prices are. If you place your mouse pointer in the odds tables on an exchange prices the best three prices will appear on your screen.

When your back bet of EUR 200 at 4.80 for Brazil to win was matched, one or more people took the countering position. While you backed Brazil, they layed Brazil to win. They were betting against Brazil to win.

You can do the same, betting against an outcome to happen. This is something you typically cannot do at bookmaker sites and one of the main advantages of betting exchanges.

When you?re backing an outcome, you want the odds in the bet to be as high as possible. Conversely, if you?re laying, then you prefer to offer as low odds as possible to the guy who backs. So, in the situation above, the best possibility for you right now is to lay Brazil at odds 5.00. You could even offer lower odds, but your offer would initially be unmatched.

Assume that you lay EUR 50 at odds 5.00. If Brazil loses, you get to keep the money of the backer and thus have a net win of EUR 50. If Brazil wins, you have to pay him his net win of EUR 50 x (5.00 ? 1) = EUR 200.

So, your risk is EUR 200 and if you win, your net profit is EUR 50. In fact, when you?re laying Brazil to win at odds 5.00, it is exactly identical to backing Brazil not to win at odds 1.25 = (200 + 50)/200).

Betting exchanges make money by charging a small transaction fee. Rules vary from exchange to exchange, but here?s a typical way of doing it: The loser of the bet pays nothing, while the winner pays a percentage, e.g., 5%, of his net winnings.

Returning to the back bet of EUR 200 at 4.80, the commission charged would be EUR 0 if the bet is lost and 5% of EUR 760, EUR 38, if the bet is won. Your net win post commission is thus EUR 722. And thus your net (realized) odds are not 4.80 but 4.61 ( = (200+722)/200 ).

So, at commission rate 5%, 4.61 are the commission free odds corresponding to back odds of 4.80. When you compare odds at betting exchanges to odds at bookmakers, you should take the commission into account as you don?t pay commission at bookmakers. Similarly, different exchanges have different commission levels, so even though one exchange may have better offers pre commission, another may be the best post commission.

You have the ability to see odds net of commission. You simply register a free Basic profile and then enter your commission at the various exchanges. If you?re not registered, you can still do it, using a set of default commissions we?ve entered. We will also show the lay prices net of commission. If you choose to see net odds then the odds table above will instead look like this:

While commission rules vary, two more features are common across most betting exchange:

• The commission decreases with the amount of your betting. Normally, the amounts required to get decreased commissions are quite high.
• The commission is charged on your net win on a market. Assume that you back Brazil to win and then later lay Brazil. In the end, you will both win and lose money on this market. Assume that Brazil wins, that your back win is EUR 100 and that your lay loss is EUR 80. Then you don?t pay a commission for the full win of EUR 100 (which would be 5% of EUR 100, EUR 5), but only for the net win of EUR 20, i.e., 5% of EUR 20, EUR 1.

If you bet with a betting exchange, you should check the exact commission rules.