What are Betting Exchanges

Published: 26/09/2010

Wagers made between individuals, peer-to-peer, are older than money, back when barter was the method of trade and gambling. Betting involving go-betweens called “bookmakers” is less than 200 years old. But it is only in the past decade or so that true “betting exchanges” have made their appearance, allowing individuals to go back to one-on-one wagering, primarily via the Internet.

In 2000, a U.K. web site called Flutter.com began matching up punters. It was soon followed by BetFair, who initially called their version “open market” betting, but soon changed it to “betting exchange” and eventually swallowed up Flutter.com to become the dominant force in the fledgling industry.

A betting exchange is similar to a bookmaker or sports book in that it allows bettors to wager on various events. However, there are some significant differences, not the least of which is that the exchange sets no odds. Nor does it assume any risk. Instead, betting exchanges make their income off commissions, which they take as a small percentage of net winnings from every customer on every event or market.

In return for this commission, the betting exchange acts as a matchmaker and a clearing house. It pairs up bettors on either side of a wager, hold their stakes until the results are known, and issues the winning payouts. It also maintains records, not only of the wagers but also of the events that are bet on. It contains a massive archive of information that savvy punters can use to their advantage.

What is especially beneficial to experienced handicappers is the ability to set their own lines. The betting exchange takes no position on odds, spreads, or even what markets are available. It is entirely up to the subscribers to make all of the offers.

For example, if a bettor wants to offer 100-to-1 odds on England winning the 2014 FIFA World Cup for up to £100 in wagers, the exchange will post it exactly that way. If another bettor offers the same market at 120-to-1 odds, the exchange will post that, too. Other subscribers can take their pick of the two, obviously going with the higher payout. This breeds competition and a completely free market for wagering.

Some betting exchanges, such as BetFair, have used European decimal odds rather than traditional U.K. fractional odds to list the markets. This practice differentiates them somewhat from bookmakers. Others have introduced a toggle that allows the subscriber to move back and forth between formats, and some have American-style plus/minus three-digit odds available, too.

Another aspect of betting exchanges that attracts wagers in large numbers is the ability to “lay” odds. In traditional wagering, bettors can only wager on an event happening, such as a team winning a game or an individual winning a tournament. Laying odds allows them to offer a wager on something not occurring, such as a certain golfer not making the first round cut, an underdog failing to cover the spread, or a football club not being relegated. All it requires is another subscriber willing to be the “backer” of the bet and take the other side.

In-running betting or “live” betting is also a special strength of betting exchanges. Virtually every aspect of a game or event can be wagered on as play occurs—which side will score the next goal, whether a golfer will sink a long putt, who will win the next point in a tennis match—and the bigger the audience the more opportunity to find backers or takers for any offer.

One might wonder if there are enough individuals using betting exchanges to support such a system, no matter how easy or flexible it might be to use. However, private punters are just one source of the action at a betting exchange. Another major source of action are “traders” who use the exchanges to balance the action for bookmakers, hedge large bets, and take advantage of discrepancies between the odds offered at traditional sports books. There are no limits set on wagers, other than how many bettors are willing to risk going one-on-one.

Published on: 26/09/2010

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