In 2001 sports betting changed for ever with the emergence of the first betting exchange. Betfair set the ball rolling and this operator still dominates the betting exchange market. Several other firms have tried to gain market share but Betfair is the go-to exchange due to the number of leagues, events and markets on which customers can place back and lay bets.
As part of Rick Elliott’s Betting World I have extensive experience of exchange betting and can highlight the dos and don’ts. The most important factor to bear in mind is that we are talking about per-to-peer betting which means that for every winner there must be a loser. Traditional bookmakers make money by offering advantageous odds but exchanges profit from charging commission on winning bets.
There is a common fallacy that bookmakers always make money. There are phrases in popular language such as ‘you never see a poor bookie’ and ‘the bookies are not often wrong’ It’s true you don’t see a poor bookie because the losing ones go out of business. A bookmaker can be wrong 50% of the time and still make money due to the theoretical profit margin in the odds.
Betting exchanges allow us to play the role of the bookmaker by accepting or laying bets. This is not an easy route to a fortune because it’s a brutal business. If your odds are slightly out of kilter with the market you will be destroyed so you must proceed with caution when laying bets on a betting exchange. Your odds will be exposed and before long you could run up a liability and have no chance of balancing your book.
A betting exchange is a marketplace that brings together backers and layers at mutually beneficial odds. Any market is dependent on the law of supply and demand. If the supply exceeds demand there will be a price adjustment and the back price will go up. If demand exceeds supply there will be a price adjustment and the lay price will go up. At the same time there will be a corresponding move on the other side of the market. When the two forces reach a stage of equilibrium bets will be matched.
Backers and layers have differing opinions and both wish to express their confidence in being right with hard cash. When the price is right for a backer and layer bets are matched for an agreed amount. In some cases only part of an offer may be matched at an agreeable price. The market readjusts so some of the bet stays in abeyance until the price is again agreeable to both parties. You have to take care with your lay and back offers and the amount you are prepared to risk because transactions are fast.
An efficient betting exchange must have enough liquidity to attract plenty of backers and layers. The new betting exchanges will always be at a disadvantage to Betfair due to the lack of liquidity. Customers know there will be liquidity in Betfair’s market which feeds upon itself. Good levels of liquidity attract customers who generate more liquidity. This is a cycle that other betting exchanges have difficulty in breaking. Some of Betfair’s competitors pump money into a market to create liquidity artificially but this strategy is not sustainable.
You can trade your bets on a betting exchange to guarantee a profit when the market moves in your favour or minimise a loss when it moves the other way. In-play trading with a betting exchange led to an explosion in live events offered by traditional bookmakers. The cash out facility available with regular bookmakers is akin to closing a bet on a betting exchange but the odds can move for or against you and that movement determines if you have made a profitable or non-profitable bet.