We’ve looked at totes and bookmakers. There’s a third type of wagering operator: the betting exchange.
A betting exchange is not a traditional bookmaker, which takes bets from punters and pays out to winners. A betting exchange instead just hosts bets between punters.
The biggest betting exchange in the world, and the only one operating in Australia, is Betfair.
How does a betting exchange work?
When placing a bet on an exchange, you have the option to either Back or Lay your selection.
Backing is a bet in the more familiar sense: you’re betting on your selection to win, and you collect your winnings if it does.
Laying is the opposite: you’re betting against the selection winning, and you collect if it doesn’t win. It’s really what a traditional bookmaker does: he wins your stake when your selection fails to salute.
Think of it like any bet you might have placed with a mate about a game of footy, or any other sport. All the betting exchange does is host that same thing on a grand scale, connecting punters across the world who are opposing each other on a wager.
Betting exchange: matching
Of course, for a bet to take place, there must be two punters on either side of the wager who agree on the odds and the stake. On Betfair this is called matching: a bet is locked in when it’s matched between two punters – one backing the selection, and one laying it at the same price.
The odds system is straightforward: the displayed odds – for Back bets at least – are the same format as you see with any traditional bookmaker.
Odds of $5.50 on a horse? Back it and your stake (for example, $100) goes in, and you’ll collect $550 if it wins (before commission): a profit of $450 (more on commission later).
Lay betting is the other side of the wager, the role traditionally played by a bookmaker. If you wish to Lay something, you put up the backer’s winnings (your liability), and you collect their stake if they don’t win.
Using the same example: on the lay side, your liability is $450, which goes into the bet. If the horse wins, the backer wins the $450 and you lose it. If it doesn’t win, you get their stake: $100 before commission.
Betting exchange: market depth
As we said above, for a bet to be matched and thus finalised, there needs to be a backer and a layer at agreed odds. On both sides of the equation you can nominate whatever odds you like: if you’re a long way off the rest of the market however, it won’t get matched and no bet will be placed.
You’ll notice that on a betting exchange, the odds for backing and laying are displayed along with the current volume available in the market at those odds. That’s the amount of money waiting to be matched at that price.
The first punter in a market enters his stake at his desired odds, and the first person to accept those odds on the other side matches the bet, and it’s finalised.
The best odds placed (and the volume) are always the first at the front of queue, and will be the first matched. The market then works its way through the unmatched odds, continually matching wherever there’s available funds at the same odds on both sides.
The volume in any market obviously depends on its popularity and how many people are betting on it. So the volume in high profile events like English Premier League soccer matches, or big races like the Melbourne Cup, is huge. It’s far less so for a Tuesday maiden at Swan Hill.
Check out this example of a Betfair Market:
It’s the main market on a soccer match, so there are three selections: Manchester City to win, Leicester or win, or The Draw.
The market shows the prices available for each (the bold numbers), and the unmatched volume available at those prices (the smaller numbers below each price).
So far, $322,875 has been matched on this market across all selections. The prices in the market table are the current unmatched amounts.
If, for example, you wanted to back Man City, the best price currently available is $1.38. There’s $30,636 available if you wish to take that. If you want to back The Draw however, there’s only $41 available to be taken at the best odds of $5.90. If you want to bet more than that, you can either leave it unmatched and wait to see if somebody takes the rest of your bet at $5.90, or you can take the next-best available price, which is $5.80 (there’s $3,089 available at $5.80).
Obviously, as a backer you want the highest price possible.
Laying is the reverse – you want the lowest price possible because if you lose the bet, you pay out less. Here you can lay Leicester (ie, bet on them not to win) at odds of $8.80 – a backer (or a combination of backers) has $625.unmatched at that price. If, for example, you chose to lay Leicester for $100, your liability would be $780 – that’s how much you pay the backer/s if Leicester wins.
If Leicester does the right thing by you and loses, you collect the $100.
Betting exchange: commission
Betting exchanges aren’t charities. They make money off all bets, but they’re not a traditional bookmaker, so they don’t do it in the same way.
They do this by charging a commission on all winnings. Your commission charge is a percentage of any profit you make on a bet: on most Betfair markets worldwide it’s 5%, however on others it’s higher due to license fees they have to pay sport or racing bodies.
And yes, you guessed it, that includes Aussie racing! Different states charge Betfair different amounts, and thus have different commission rates.
Commission is only charged on your profit on each bet, not the total collect. There’s no commission charged on losing bets – the winner who took your stake pays that!
For heaps more info and learning materials on the exchange, checkout out the Betfair Hub.