What Is a Betting Exchange?

Betting exchanges are an online market that allow you to bet directly against other users. In recent years, the popularity of betting exchanges has skyrocketed, since they almost always offer more favourable odds than traditional bookmakers. In this article, we'll walk you through exact how exchanges differ from bookmakers, touching on how they work and their various pros and cons.

Exchange vs Bookmaker: What's the Difference?

Traditional bookmakers — also known as sportsbooks — take the second side of any bets you make. For example, if you place a £100 bet that the home team will win the match, the bookmaker is effectively betting £100 of their own money that the away team will win (or the match will result in a draw). As a result, for the bookmaker to win in the long term, they need to gain an edge by offering statistically unfavorable odds, even by a small margin. Exchanges are different in that they allow you to directly bet against other users, instead of betting against the bookmaker. Usually, betting exchanges offer better odds than sportsbooks. You'll see why in just a second.

How Do Betting Exchanges Work?

Exchanges work by matching up users who are betting on opposite outcomes. So if you place a bet that the home team will win the match, the exchange will wait until a user places the opposite bet — this is called a lay bet — before matching the two sides up. This is relatively straightforward, but what's more interesting is how the odds are determined for these bets. As we mentioned earlier, exchanges are effectively online markets. That means that users can submit bets at whatever odds they want. Of course, bets only count if there is a user willing to take the opposite side of the bet at those same odds. As a result, odds on betting exchanges are determined by what the market thinks is fair: those backing (betting for) an outcome will aim for the highest odds they can get, while those laying (betting against) an outcome will aim for the lowest odds they can get, until the two sides eventually meet in the middle.

If you take a look at a betting exchange, you'll see that the odds for a certain outcome have a pound figure next to them. This tells you what size bet you'll be able to place — and have matched — based on the bets placed by those betting against that outcome.

How Do Exchanges Make Money?

The curious among you might be wondering how betting exchanges make their money. After all, traditional bookmakers make their money by stacking the odds ever so slightly in their favour, but exchanges can't do that! You guessed it: betting exchanges take a commission on your bets. Most exchanges only take a commission on winning bets, but it can still reach as high as 5%! In any case, this usually leaves you walking away with more money than at a traditional bookmaker.

Pros and Cons of Betting Exchanges

It's time to look at the various pros and cons exchanges offer. Let's start with some of the pros:

  • Better odds: Since exchanges directly match you with users who want to take the opposite side of your bet, you end up with significantly better odds for your bets. Ultimately, this means you walk away from winning bets with more money, even after accounting for the exchange's commission.
  • Lay bets: Exchanges allow you to take the role of the traditional bookmaker, by betting against others. This simply gives you more flexibility with your betting strategies.
  • Trading: Exchanges also allow you to place bets at various odds, and — as those odds move — effectively sell them onto others for a profit. This practice, known as sports trading, is a whole new industry in itself made possible by exchanges.

And really, there are just two big cons of betting exchanges:

  • Fewer markets: Since other users have to want to take the opposite side of your bet, which isn't always the case, betting exchanges usually offer fewer markets than traditional bookmakers (who can just bump up their odds for small markets).
  • Fewer promotions: In case you're a fan of using bookmaker promotions, you might be disappointed to know that betting exchanges tend to offer fewer deals, bonuses, and other promotions than traditional bookmakers.

As you can see, there really are quite a few benefits to using betting exchanges, especially for serious betters and even traders. Yes, there are some downsides to exchanges, but they will only matter for some select users.

Should You Use a Betting Exchange?

In case that pros and cons section didn't fully answer your questions, let's take a second to talk about whether you ought to use a betting exchange. This really depends on what kind of better you are… For professional betters, exchanges are almost always the choice. With top-notch odds and the ability to lay bets and even trade bets, they offer more flexibility at a better price — so to speak. Of course, there are exceptions to this, such as if the better's strategy revolves around betting on smaller markets. For casual betters, it's something of a tie between exchanges and regular bookmakers. The reason bookmakers gain an edge here is because of their numerous promotions, such as sign-up bonuses, which can sometimes add up to a decent amount of money. 

Examples of Betting Exchanges

There are a growing number of betting exchanges out there. The largest is supposedly the Betfair Exchange, which allows you to bet on a wide variety of sports and more (even including political events!). Other popular exchanges include Matchbook, Smarkets, and others.

Final Thoughts

Betting exchanges are a new and exciting way to bet. By directly matching you up with users who want to take the opposite side of your bet, they offer significantly better odds than regular sportsbooks. Of course, the exchanges have to make their money too, which comes in the form of hefty commissions on winning bets. In any case, the benefits of exchanges usually outweigh the downsides, especially when you consider the possibility to lay and even trade bets!