What is a Betting Exchange?

Most people are familiar with the classic way of betting. You go to a bookmaker and place a bet on something (either online or in a shop) and then they settle it and return your funds. Essentially bookmakers took the risk against you and that was previously the way betting was run.

This was until approximately 17 years ago when Betfair was formed and changed the betting landscape for good. It allowed the punter to place bets with other punters. This meant that you could become the bookmaker. This was good news as the exchange removed the built-in overround bookmakers needed to make money. Instead, Betfair would take a flat 5% commission on winnings for new customers and tailor this depending on how much you staked.

In essence, exchange betting is the same if you wish to ‘back’ a selection. You will place a stake at a certain odds and it will return your winnings if that event occurs. The main difference with the exchange is that you can ‘lay’ a selection from happening. This bred a whole new, more intelligent form of customer; The trader. Traders often use large sums and can sway prices as the market is free, not set by the bookmaker. Even now there are markets with very little liquidity, so you can set your own prices here and move the market in the way that you see fit.

Betting exchanges are crucial to people that take trading seriously as it removes the overround and for long term user, the commission can become very small. It shouldn’t be important only for traders as exchanges offer a wealth of information and will often be used by bookmakers to shape their own prices. The fact that you can lay means that having access to an exchange open up arbitrage and matched betting opportunities also, ever increasing the likeliness of your bankroll increasing.

Smarkets and BetDaq have begun to challenge Betfair’s dominance in this area recently with their lowered commission. Yet Betfair still stands alone as the industry stand out mainly due to their strong brand and huge advertising budget. Betfair have also allowed their API to be available to the public for sometime, allowing traders to automate their transactions in the way that financial traders might. Their API is given freely although there are additional fees for Live Data. BetDaq does have this as well but implementation has to approved to ensure efficiency and that transactions contribute to the exchange as a whole. Smarkets will soon be releasing their API to the public, which will give them another push towards Betfair.

There are even trading tools that you can now hook up to most exchanges that are integrated into Excel, meaning that you can run your own models directly into the exchange. The introduction of the betting exchange has changed the way many of us viewing sports betting and given us so much more information than we have ever had.


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