Betting Exchanges

Betting Exchanges – The Cornerstone of Matched Betting

Matched betting involves taking advantage of free bets by backing and laying an outcome with different bookmakers. The back bet is placed with a traditional bookmaker while a lay bet is placed with a betting exchange. The process is dependent on placing both bets at the appropriate time. The back bet has to be complimented by the lay bet and this element of the process requires a betting exchange. The loss from the back bet is countered by the profit from the lay bet and conversely if the lay bet is a loser the stake is covered by the profit from the back bet. The two sums vary slightly because the lay price is usually bigger than the back price and commission has to be taken into account. A betting exchange is an intrinsic part of making risk free profit from matched betting.

Introduction to Betting Exchanges and How They Work

Traditionally betting operator customers placed a back bet on something to happen. Bets can be placed in singles, accumulators and system bets which include various combinations. If the predicted outcome does not happen back bets are losers and the stake is lost. If one selection in an accumulator does not win it is a losing bet. In system bets one losing selection significantly reduces the return. Bookmakers offer odds boosts and insurance against one loser in a multiple bet but generally if one selection lets you down the back bet is unsuccessful.

In 2001 a new concept appeared in the betting industry called an exchange. The innovators and market leaders are Betfair and this operator dominates the market. For the first time bettors could play the role of the bookmaker by accepting (laying) bets. A betting exchange brings together backers and layers of an outcome and bets are matched if the price is mutually acceptable. In some cases the bet might be partially matched or not matched at all. These types of bets can be left in the system until they are fully managed or cancelled. There is the constant dynamic of price changes.

Betting exchanges are vital in matched betting because they provide the mechanism to lay bets. Options are traded on a betting exchange but they are associated with sporting events and not financial and commodity markets. In taking advantage of free bets the matched betting process involves placing a back bet with a traditional customers and placing a lay bet with a betting exchange. The operator matches a backer with a layer and charges commission on winning bets. The exchange is not concerned with the outcome as there will always be a winner that generates commission.

Betting exchanges allow bettors to trade sports bets in the same way that you can buy and sell stocks. The backer is akin to the buyer and the layer is akin to the seller. If more customers want to back an option the price will contract and if more customers want to lay an option the price will increase. The price of any outcome is based on the balance between supply and demand. Prices are moving constantly so the timing of lay bets is important. Any movement in either direction will affect the bottom line and guaranteed profit so the matched betting process must be followed to the letter

Betting Exchange Sites

It’s difficult to gain market share in the betting exchange sector. There are the infrastructure costs, marketing and advertising and the need for liquidity. If there is no liquidity in the market bets are more unlikely not to be matched. An effective exchange requires many backers and layers who are then more likely to agree a price so more bets are matched. Liquidity feeds on itself so if there is some liquidity more backers and layers are attracted. Small amounts of liquidity means bets are more likely to be unmatched or partly matched. Due to the costs and mechanism requirements in May 2018 there were only four betting exchanges based in the UK:

Betfair

Betfair were the pioneers of the betting exchange model at the start of the century. The operator has the most liquidity in many markets and dominate this sector of betting. The company have continued to invest to create the best technology, the most markets and the best liquidity. However, with over 90% share Betfair monopolise the market so can charge relatively high commission rates. The most profitable customers pay a premium commission rate.

A betting exchange’s strength is based on the number of customers with a different opinion but this generates liquidity. If there is no liquidity in a market bets cannot be matched. Betfair introduced a fixed odds sportsbook in 2015 and the merger with Paddy Power created the biggest gambling operator in the global industry. Betfair are synonymous with exchange betting and the branding and name makes it difficult for others to gain significant market share.

Smarkets

Smarkets has been operating since 2010 and is one of the operators that is trying to compete with Betfair. The company cannot compete on liquidity but is looking to profit from Betfair’s premium commission rates. The investors have experience in creating the infrastructure for a trading platform. The investment means the exchange has established a safe and secure platform for matching bets.

Liquidity will always be an issue in the Betfair dominated environment and creating liquidity can be a slow process. The major betting markets have enough liquidity for bets to be matched or partially matched. However, liquidity is low for some secondary markets but even these markets generate decent backing and laying activity once the event has begun and there is in-play trading. Smarkets has introduced some features not found at Betfair and commission rates are low so they are a viable alternative.

Betdaq

Betdaq is the second biggest betting exchange behind Betfair but even then their market share is about 10%. The company is part of the group that owns Ladbrokes so compliments their sportsbook with a functional betting exchange. However, there is no seamless navigation from the exchange to the sportsbook which is available with Betfair. The Betdaq brand does not have the same resonance with exchange bettors as the familiar Betfair branding.

Betdaq covers all the main betting sports and liquidity is not an issue with the major events and markets. However, it can be difficult to get bets matched in some minor markets as the level of liquidity does not create enough mutually beneficial trading. Big staking punters may become frustrated by the lack of liquidity and bets could be only partly matched or not matched at all. Betdaq offers a wide variety of events for in-play trading but the lack of liquidity again is a negative. The cash back bonus up to £1,000 sounds attractive but the staking requirements are stringent.

Matchbook

Even though Matchbook was founded in 2004 it was only in 2011 when new investors improved the infrastructure and trading platform. This operator will find it virtually impossible to generate the levels of liquidity available with Betfair through normal functioning. Matchbook offer low margin betting and a commission rate of 1% on winning bets is a massive positive. Commission is also applied to losing stakes.

The focus is on offering a low margin exchange for the main betting sports and leagues and ignoring the secondary markets in which creating liquidity is virtually impossible due to Betfair’s dominance. Matchbook does not have a welcome offer but a cash back promotion but there are restrictive staking requirements. The range of in-play events and markets compares unfavourably with the competition, mainly Betfair. Matchbook offers a unique feature for an exchange with the chance to win a jackpot prize from a pool for a small stake on many markets.

Conclusion on Betting Exchanges in the Matched Betting Environment

The matched betting process requires an efficient betting exchange so that lay bets are matched. The bookmaker free bets are best suited to the main sports and markets which offer the best and most reliable liquidity. If a matched bet cannot be accepted at a price close to the back price the process falls down. Even though the competitors offer lower commission rates and decent liquidity Betfair is still the best option if you are looking to lay bets as part of the matched betting process.