For many years and from the start of organised bookmaking betting was about backing your opinion with hard cash. Bettors placed wagers on something to happen and bookmakers accepted the bets. The price of backing outcomes has always been the odds which reflect the bookmaker’s perception of the likelihood of an event taking place. Traditionally you backed a horse to win a race or a football team to win a match. Sports betting began to grow in the 1990’s but there was no revolution.
The sports betting landscape had its biggest change for centuries at the start of the century. A small company called Flutter was purchased and Betfair was born. They were the first exchange bookmaker and they are still the biggest and best. Betfair is synonymous with peer-to-peer betting on an exchange. The new company introduced a concept that sports bettors had not seen before and laying a bet was born.
When bookmakers accept bets at a mutually beneficial price they are laying. You might see bookies described as layers because they lay bets. The conventional relationship between punters (backers) and bookmakers (layers) changed for ever when Betfair came on the scene. We could all now choose to place or take bets in a peer-to-peer environment and punters loved it from the word go. The betting model continues to grow and other betting exchanges have entered the market.
A betting exchange works by bringing together bettors with a different opinion on the outcome of an event. In a football match some people might think the home team will win and others think not. The betting exchange provides the facility for those opposing forces to meet and exchange bets. The backer backs his opinion and the layer does the same and the mechanism creates a mutually beneficial price.
The backer is betting on something to happen and the layer is betting on something not to happen. If the price is acceptable to both parties the bet is matched. If the price is not acceptable to both parties the bet is not matched. If the price is acceptable for part of the stake the bet is partially matched. A bet that is not totally matched can be cancelled and taken out of the system or stand until it is fully matched.
The price at which bets are matched is subject to the laws of supply and demand. Market forces come into play and if there is an imbalance the price (odds) will change. If there are more backers (buyers) than layers (sellers) at a certain price the price will rise. If there are more layers (sellers) than backers (buyers) at a certain price the price will fall. The betting exchange provides the infrastructure for this market to operate and make money by charging commission on winning bets.
The key to an efficient betting exchange is liquidity and this is why Betfair control over 90% of the market. The liquidity in a market is the amount of money that can be traded. Liquidity is created by backers and layers and more liquidity attracts more players and liquidity increases. A market feeds upon itself and but this also happens the other way. A market with low liquidity makes it more unlikely for a bet to matched and this dampens liquidity. Betfair have got most liquidity in most markets.
The regular punter can now assume the role of the bookmaker. Peer-to-peer betting means for every winner there is a loser so you must approach laying with caution. There are horror stories about layers losing vast amounts and some examples will be covered in later articles but for now enjoy your laying of bets.