What is Exchange Betting and How it Works

The world of sports betting has witnessed a significant evolution when betting exchanges came into the picture with a very innovative approach to betting.

What is Exchange Betting?

Breaking down the term, Exchange betting can be regarded as a “betting market”. In essence, a betting exchange operates as a stock exchange for odds on a particular outcome of a sporting event. There is no official bookmaker. The betting exchange acts as an intermediary, hosting bets from users who are divided into two categories: those “backing” a specific outcome and those “laying” it. The exchange suggests odds to facilitate the meeting of “demand and supply” but the odds are determined by the users themselves. The bookmaker retains a minimal percentage commission on each concluded winning bet.

This betting system is known as Peer-to-Peer (P2P) betting and it is the most fundamental aspect of how exchange betting works. Unlike traditional bookmakers, where you place bets against the house, in exchange betting, you are betting against other players. The exchange platform is only the place that helps these peer-to-peer transactions charging a commission fee on winning bets for its services.

Let’s break this down a bit more:

Backers and Layers

As we said earlier, there are two categories of bettors on exchange betting, the backers and the layers.
Backers: These are the users who believe that a particular outcome will happen. They are basically the traditional bettors. They place a “back” bet, supporting a specific result.
Layers: These are users who take the opposite stance believing that this particular outcome will not happen. Layers place a “lay’ bet against this specific result.

Setting Odds

Unlike traditional bookies who set the odds, on exchange betting the players have the flexibility to set their own odds. The backers and the layers negotiate and agree on the odds before a bet is matched. This creates a dynamic marketplace with better and more varied odds.

Matching Bets

For a bet to be placed, there must be a match between a backer and a layer. If a backer’s desired odds match a layer’s offered odds, and vice versa, the bet is matched, and the exchange helps the transaction.

Cash Out Feature

The peer-to-peer nature of exchange betting enables the inclusion of a “cash-out” feature. With this feature the players can choose to cash out their bets before the event finishes, either to secure a profit or to minimize their losses.

User Interaction

In exchange betting, the players interact directly with each other, and they decide on the odds and stakes among themselves. The backers and the Layers place their bets on the betting exchange platform setting the odds they are willing to accept and the amount they want to stake.

Market Dynamics

The market on a betting exchange is driven by the collective decisions of the players. As more users join the exchange, the market becomes more liquid, providing a wide range of betting opportunities.
Because the market is more dynamic on betting exchanges, the odds can fluctuate in real time based on the user activity.

Commission Charges

The betting exchange charges a commission on winning bets. This commission is lower than the profit margins employed by traditional bookmakers. With the commission charged the betting exchanges generate their revenue and they are able to keep providing their services. The majority of betting exchanges available cannot be accessed directly by the users. The access can be done via betting brokers and this commission rate will be charged by them on the users, therefore it varies from broker to broker.

How does Exchange Betting Work?

There are two types of bettors on exchange betting, the backers and the layers.

When backing, you are betting on an outcome to happen, and your potential profit is based on the odds you secure.

When laying, you are effectively playing the role of the bookmaker, betting against an outcome. You assume the responsibility to payout the winnings of the backer in case you lose your bet. This responsibility is known in exchange betting as liability. Your potential loss is based on the odds and the liability you set.

In both cases, the bets are matched when there is someone on the opposite side of the market. The betting exchanges make sure that there is a backer for every layer and a layer for every backer. This flexibility to both back and lay enables you to use unique and strategic approach to your betting.

Backing

This is the traditional form of betting where you support a particular outcome, similar to placing a bet with any standard bookmaker. There is a specific color indicating the backing options on every betting exchange, and it is usually blue.

On an English Premier League match between Liverpool and Manchester City you believe that Liverpool will win the match.

You click on the blue box displaying the odds offered for Liverpool to win, your betslip opens, and you either agree on the odds proposed or you modify them according to your preferences, you place your stake and you place your back bet.

In order your bet to be valid it needs to be matched by another user that will take the opposite side and lay your back bet. If a match is found then your bet is on.

If you bet 20 EUR on Liverpool to win Manchester City at odds of 3.00, and you are charged with 4% commission, then:

If Liverpool wins: Your total return would be 60 EUR (your 20 EUR stake multiplied by the odds of 3.00). Your net profit will be 40 EUR ( your 20 EUR original stake is excluded from the total return) Deducting the 4% commission charged on your net winnings (that is 1,6 EUR), your net profit will be 38.4 EUR

If Liverpool loses: You lose your 20 EUR stake.

Laying

Laying is the opposite of backing. When you choose a bet to lay, you are betting against your selection, saying you do not think the selected outcome will happen. If the team loses or the game ends in a draw, the lay bet wins. When you lay a bet, you assume the role of the house, therefore you assume the responsibility to payout the winnings of the user who backed your lay bet. There is a specific color indicating the laying options on every betting exchange, and it is usually red.

When you decide to go against a back selection and lay it, you need to take into consideration a few things, so not to end up paying out too much. In order to that, you need to make sure your liability covers the potential net profit of the backer.

First of all, you need to calculate the potential net profit of the backer. Using the example before, the potential net profit if Liverpool beats Manchester City would be 38.4 EUR.

Now, you need to decide on the odds and the stake.

Lay odds: Using the formula 1/back odds – 1, the suitable odds to lay this bet would be 0.50

Lay Stake: Using the formula Potential Net Profit / Lay Odds – 1, the suitable stake to lay this bet would be 76.8 EUR.

Liability: Using the formula Lay Stake x (Lay Odds – 1), your potential liability laying Liverpool to win the match, is -38.4 EUR.

You click on the red box displaying the odds offered for Liverpool not to win, your betslip opens, you modify the odds at 0.50, you place your stake and you confirm your lay bet.

So, if you bet 76.80 EUR on Liverpool not to win vs Manchester City at odds of 0.50, with the 4% commission also calculated, then:

If Liverpool loses or the match ends in a draw: Your total return would be 115.2 EUR (your 76.8 EUR plus the 38.4 EUR liability). Your net profit will be 38.4 EUR ( your 76.8 original stake is excluded from the total return) Deducting the 4% commission charged on your net winnings (that is 1,536 EUR), your net profit will be 36.86 EUR

If Liverpool wins: Your bet loses and you payout the overall sum of 115.2 EUR (your initial stake + the risk you took)  

Remember that liability is the amount you stand to lose if the selection you have laid wins. It represents the risk you are taking on when laying a selection.

The Advantages of Exchange Betting

Better Odds

One of the primary pros of exchange betting is that the players can find more competitive odds compared to traditional bookmakers. This is why the odds are set by the players themselves, rather than the bookmaker, and this way the market is more dynamic and responsive to real-time events.

Flexibility in Setting Odds

With exchange betting the players have the flexibility to set their own odds when placing bets. This allows for negotiation between backers and layers, creating a marketplace where the odds are determined through consensus.

Peer-to-Peer Interaction

In exchange betting the players can interact directly with each other by offering and accepting bets. This social aspect makes the betting experience more engaging and strategic.

Cash Out Option

Exchange betting offers the cash out feature that allows players to settle their bets before an event finishes. This helps them secure their winnings or reduce their losses based on the current market conditions.

In-Play Betting

Exchange betting supports in-play or live betting that allows bettors to place bets while an event is in progress. This real-time feature adds excitement and the opportunity to adjust strategies based on unfolding developments.

No Betting Limits

Traditional bookmakers may impose limits on the amount a user can stake on a particular bet. In contrast, betting exchanges generally have more flexible betting limits since the players are betting against each other rather than against the house.

Arbitrage Opportunities

The more dynamic is a betting environment the more arbitrage opportunities it creates. Smart bettors can sometimes make surefire profits by placing both back and lay bets on the same outcome, no matter what happens in the event.

Variety of Markets

Betting Exchanges offer a wide range of markets, allowing bettors to be more creative and strategic in their betting on various aspects of a sporting event.

More Transparency

In exchange betting the odds are determined by the players and not by the bookmakers. This makes the betting process more transparent, as the players can see the odds available and make well informed decisions based on that information.

In a Nutshell

Exchange betting makes sports betting more dynamic and strategic. It lets bettors not only support outcomes but also bet against them. The make the most of this, it is essential to understand Backing and Laying, make wise use of the Cash Out feature and pay attention to market trends. Exchange betting can be very beneficial and profitable when it is combined with careful thinking and smart decision-making.