All about betting exchanges
Differences Between Bookmakers and Exchanges
As you may already know by now, a betting exchange differs greatly from a conventional bookmaker. Rather than accepting bets itself, it functions as a type of bet matching mediator which provides punters a platform to place bets between themselves, in a peer-to-peer environment. When you place bets on a betting exchange, you’re essentially wagering against another user at the exchange, with the exchange playing the role of a stock exchange basically, with users selling (laying) and buying (backing) odds on outcomes of specific sports events.
How these exchanges earn money?
If these exchanges serve only as mediators between the users, you may wonder how do they make money?! Conventional bookmakers provide odds on different sports events and those odds are purchased by sports bettors (by placing bets). The bookmaker pays the punter if the bets are won, and claim the customers’ stakes if the bets are lost. As simple as that.
However, if all that a betting exchange does is facilitate the bets between different exchange users, how does it make money?! The primary difference between a betting exchange and a conventional bookmaker in this regard is that while a conventional bookmaker earns money when you lose, a betting exchange makes money when you bet more. It doesn’t matter to an exchange who loses or wins the bet, as long as a bet is placed.
Why? Because these betting exchanges earn a commission on all bets placed. This is the price paid by the exchange’s users for having their bets matched with other users of the exchange.
The way in which these commissions are charged and the extent of them depends entirely on the market traded on and the specific betting exchange. For instance, some betting exchanges charge reduced commission amounts on prominent football leagues, while others charge reduced commissions on certain betting markets like Asian handicaps, to encourage more people to trade on them, in order to increase their popularity.
Betting against a result
The ability of both laying and backing an outcome enables exchange users to secure a bet, regardless of the way an event may actually end. This is particularly popular in in-play betting, and is referred to as ‘trading a market’ by the betting exchange veterans. In fact betting exchange users are actually called traders, instead of bettors or punters.
These exchange traders basically trade positions quite like brokers operating in a stock exchange, making live assessment of a market, as the event is in-play. It’s important to understand and appreciate the dynamism of betting exchanges and acknowledge that while conventional bookmakers also offer ‘cash out’ features and ‘in-play’ betting these days, it is only on these exchanges that real traders hone their craft and are able to benefit from maximum value and flexibility.
Furthermore, while a conventional bookmaker might want you to lose, a betting exchange, which acts as a facilitator, is normally impartial, and doesn’t care who wins. As also highlighted above, rather than earning from your losing bets, a betting exchange makes money from the extent of betting activity on it.
No limits betting – theoretically
Although betting limits may differ from one bookmaker to the other, as well as from market to market, theoretically there aren’t any betting limits in an exchange. Why we emphasise on that being true theoretically is because the amount allowed for betting is limited only by the liquidity offered by that market. So, what’s meant by market liquidity?
Market liquidity is a phrase you’ll often overhear in conversations between betting exchange veterans. What does it mean? It simply refers to the actual amount of money that’s being actively traded between the exchange users in any given market.
If you look at a betting exchange like Betfair, some markets may witness trading activity ranging into millions of pounds, especially when it comes to popular markets like Champions League, English Premier League, major races or international events like NFL Super Bowl. All these markets have a fairly high liquidity.
Another major limitation is in terms of the odds offered by the exchange users. Despite high market liquidity, you may find yourself unable to wager the kind of volumes you wish to, at the desired odds.
All about betting exchanges