Betting Exchanges – The way to cut out greedy bookies and bet purely against other punters. What’s not to love, right?

So, why is so much more money being pumped into bookmakers pockets than is being circulated in the exchange? Let us explain why exchanges matter and why you should use them (if you can).

If you’re not quite sure what a betting exchange is, read up on that first. Here is Betfair’s own explanation – What Is A Betting Exchange

Basically, just punters vs punters with the exchange mediating and taking a little cut. Just like a having a bet with your mate at the pub (If the person who introduced you both, took a little finders fee..)

Let’s get into it.

Why Betting Exchanges Are Valuable

Betting exchanges have become a large part of the betting landscape, with massive growth over the past ten years. But they are more than just another option, they are an important cog in a complex online betting world. Here’s why.

You Set The Odds

Offset bets are those in which the bookmakers define both the market and the odds, as well as the amount you can bet. We are essentially playing by their rules, on their turf.

They have dedicated, full-time, resources to price and adjust odds on events. They can omit a market if they don’t believe they can’t price it accurately, and they can add a market if they believe they have the best information regarding the event.

Oh, they also can decide at will whether to have a margin of 4% or 20% (Yes it can happen) on any given event.

On an exchange it’s different, yes they publish the markets they choose – essentially anything that enough people will bet on. But, they don’t set the odds. We do.

You are either accepting odds another bettor has proposed at an amount mutually agreed upon, or you are proposing odds for other punters to accept if they choose. Punter to Punter betting.

No Limits

Betting exchanges want you to win, they don’t lose if you win as bookmakers do. They get their cut, you get your winnings and everyone’s happy.

With the notable exception of Pinnacle, bookmakers will limit you eventually (If you win. If not, they’ll offer you bonuses..).

It is the single biggest factor in limiting the income potential of profitable bettors, but not on a betting exchange – you will never have your account limited and you will always be able to bet any amount agreed on by you and the other punters around the world. Crucial.

Commission

This one’s a little more complicated – Betting exchanges charge a commission, while bookmakers have margins.

Let’s use Betfair as an example, they charge the highest base commission of any popular exchange at 5%, charged only on winnings – which is important:

If we bet on a coin-flip, (please never bet on a coinflip..) the odds of each result are 50%. A fair market would give odds of 2 for both sides. But we don’t have a fair market…

A bookmaker’s odds on any 2-way event like this would be approximately 1.90 – a 5% margin.

With the nature of an exchange, you may be able to get up to 1.99 odds – but we’ll settle for 1.97

We’re placing a $100 bet, and we win. On the exchange, we’ve made $97 in the stupidest way possible, woohoo. But wait, the 5% commission.

Exchange – (5% of $97 = $4.85) $97 – $4.85 = profit of $92.15.
Bookmaker –  Preset at $1.90, profit of $90.00

All pretty clear-cut. But there is more, there are exchanges like Smarkets who charge a base commission of just 2% and there are bookmakers who can charge upwards of 10% commission when they are unsure of a market.

There is certainly more nuance here than I just described, betting on higher odds propositions changes the formula. Then we have Pinnacle, for example, a bookmaker that can have margins as low as 2%.

There is certainly a lot to take into account, but, in general, if you are diligent and there is enough activity in the market (we’ll get to that later), you can get a better return on an exchange.

Keeping Bookies Honest

This one is pretty simple –  if we are exchanging bets through an exchange at better odds than can be achieved at a bookmaker, they have to compete.

In Australia, where I live, it is notoriously hard to get a bookmaker license, we don’t allow any offshore betting and the number of bookmakers shrinks by the year as they all absorb each other en route to a complete monopoly on odds and markets.

Enter Betfair.

Betfair has had to jump through hoops in getting, then maintaining, there betting license, the only exchange that has been able to do so in Australia. If it wasn’t for Betfair, what would stop Australian bookmakers from having absurd margins and no one to compete with them. In fact, we just saw BetEasy, Australias third-biggest bookie, get swallowed by Sportsbet, Australias biggest bookie (Owned by Paddy Power), in a takeover that has become a common occurrence, as the big guys solidify their position.

Betfair creates competition, not from other bookmakers who are looking to get bought out, but from the odds and markets created by other punters around the world.

More Ways To Win

On an exchange, you have more ways to get an edge. Firstly, you can bet or ‘lay’ any market, I’ll hand you over to Betfair again to explain that one – Lay Betting Explained

Other betting systems and methods that have been made possible by betting exchanges are:

• Bots – yes, you are able to use automated bots to manage your betting activities. In fact, it’s encouraged.
• Position trading – much like on the stock exchange you can place bets with intent to sell them off. Finding opportunity in market swings. There is a lot to this and we’ll break it down in a future article.
• Betting triggers – without having the expertise of creating bots you can still manually set up bets to trigger when the market hits a certain price
• Hedging – hedging is multi-faceted and can come into play with any of these methods listed, the exchange has opened up that whole world
• Matched Betting – some people make quite good money off no-risk propositions, mainly by taking advantage of bookmaker deposit offers and then hedging on an exchange to make guaranteed profit.

There is certainly more, far too many to fit into this article, let along explain properly. If you like us to do a deep-dive into any certain method or system let us know!

Why Isn’t Everyone On The Exchange?

With all that said, the market share for betting exchanges is comparatively small in reference to the whole online betting landscape. But why?

They Just Don’t Know About Exchanges

I have ads for bookmakers on my TV every 5 minutes, bonus bets, odds boosts, deposit bonuses, and all the rest. It’s all right there. And it’s all pretty loud.

Betfair is a little bit more understated, recreational punters may just want to go the simple route or understand exchanges to be something of an expert or specialists market. Much like the stock exchange. Not a lot of people truly understand the nature of a betting exchange and aren’t aware that in some cases it can be used interchangeably with bookmakers, and yield better results.

It Can Be Daunting

Umm… What the heck am I looking at? There is a lot of information on the Betfair exchange and in a lot of ways, yes, it is a more complicated system to learn, build, and implement – even for more advanced bookmaker bettors.

I think Betfair in particular, could present as a little more user-friendly, but that is a discussion for another time

Some Countries Are Behind The Times

If you are betting on the Betfair exchange in Spain, you may be underwhelmed by the lack of liquidity. Spain, and now some other countries, have made it illegal for the global Betfair exchange to be used in Spain – so, betfair had to compromise and set up an internal Spanish exchange at the address betfair.es.

With the limited pool of bettors in these gated one country exchanges, most methods are straight out the window, the volume just isn’t there. Other notable countries that are limited to localised exchanges are Italy and Romania.

Other exchanges haven’t been able to get licensed at all in these countries.

So much for globalisation, huh.

Market Availability (Liquidity)

For advanced bettors, this is a big factor. There are going to be fewer markets on a betting exchange because there are fewer people offering odds, and… there are going to be fewer people offering odds because there are fewer people to accept them. If the people aren’t offering odds, there’s no bookmaker to do it for them. So fewer markets are released, what’s that old saying about the chicken and the egg?

When betting, you have to really drill down and find an edge in a particular sport or market, if that market isn’t available on the exchange then you’re out of luck. Until we have more bettors using the exchange, it won’t be an option for every person and every system.

This is not helped by the archaic betting laws, referenced above, that stop whole countries participating in the worldwide exchange – limiting the pool of bettors, bets, and overall liquidity.

Is Betfair Getting Too Greedy?

I mentioned earlier that Betfair has the highest commission out of any of the main exchanges. Are they getting a bit too greedy?

Maybe, but there are certainly other large factors at play.

I’m going to use Australia as an example again, we have two main sporting leagues in Australia NRL (Rugby) and AFL (Australian Rules Football)

AFL has a relationship with Betfair and due to the lack of taxes or fees for Betfair to publish AFL markets, the commission is a tiny 2.5%. NRL on the other hand, have introduced a new ‘product fee’ and Betfair have had to pass that onto bettors, the commission is set to a massive 10%. You can read Betfairs statement on that here – NRL betfair commission statement

Here is a chart that shows the different base commission rates for different sports and states in Australia:

Every commission figure you see here is directly affected by the fees they are charged by sporting codes and state governments. That couldn’t be described as greed.

The same applies when assessing the different base commission rates for certain countries. Government regulations and taxes have meant countries like Armenia, Croatia, and others are stuck with a 7% base commission.

What About The Other Exchanges?

It is relevant that growing exchanges such as Smarkets have markedly lower commission rates, with Smarkets base rate at only 2%. Why on earth would Betfair need to have a base commission of 60% higher?

Mostly, because they do spread further, have more markets, more staff, and have pushed to expand where Smarkets and others haven’t been able to. That costs money, whether that makes up for a 60% hike in commission is hard to say.

But in the end, they still have more markets, more availability, more liquidity, and still dominate the markets for that reason.

If you are in a country with access to one of those alternate exchanges, and you can use your system with them, it’s a no brainer – bet where the lowest commission is.

I’m going to do a full write-up on all the relevant exchanges, where they can be used and the pros and cons of each. Stay tuned.

Betting Exchanges: Conclusion

Betting exchanges are good for the betting landscape, they are incredibly important to keep the balance.

If you can use them you should, there is better value to be found, more ways to bet, and the more they grow the fairer the betting industry gets and the more competitive bookmakers have to be. Spend the time understanding the exchange, learning the nuances and identify whether your system could work.

Of course, not everybody has access to exchanges, or not everyone has the market opportunities as they would with a traditional bookmaker. That is a massive shame, we will always push for more availability and liquidity in betting exchanges, and a lot of that starts with government regulations.

Till then, everyone who can access the exchange, I implore you to learn and incorporate the exchange into your value betting system.

Happy (Value) Betting