Betting exchanges are companies that allow bettors to exchange odds and to bet against each other, rather than betting against a sportsbook.
When betting with a traditional sportsbook, the book’s oddsmaker sets the lines with a built in margin and tries to get the public to bet 50/50 on either side of the market. One side wins, one loses and the sportsbook keeps the margin. A betting exchange differs from this in that bettors are betting against each other and the exchange is set up to facilitate this transaction.
When you go to a bet exchange, you will see that each market has two prices instead of one: a price to back and a price to lay.
What does “Back” mean?
Backing a bet simply means you pick a market which you think will occur. For example, backing Manchester United at 1.75 means that you think Manchester United will win and you will receive 1.75 * your stake if they do. Sounds like a normal sportsbook, right? However, there is a second side to the exchange transaction, the lay.
What does “Lay” mean?
If you were to “Lay” Manchester United at odds of 1.80, that would mean that you are betting on every outcome that isn’t Manchester United winning, betting that Manchester United won’t win. When you place a lay bet, rather than enter the amount you would like to risk, you enter the amount you would like to win. If you lay 100 on Manchester United at odds of 1.80, you win the 100 that someone else bet on a Man U back if the match ends in a draw or their opponent wins. However, you are liable to pay out those who backed Manchester United if Man U wins. If you layed Man U at odds of 1.80 and Man U won, you have to pay out the winners! That means that you would have to pay 80 to whoever backed Man U with 100!
You essentially take on the role of the sportsbook when you lay a bet. Taking the stake of those who made incorrect picks, but also paying out to those who made correct ones! You need to make sure that your balance is enough to cover your liabilities.
Bet Exchange Commission
Now that the economy between the bettors backing and laying markets makes sense, what is in it for the bet exchange? Why does the exchange exist? Exchanges exist to match up large numbers of backers and layers for markets, trying to ensure that the economy is balanced and everyone will get paid out for correct picks. Rather than add a margin, ala a traditional sportsbook, bet exchanges take a fixed commision off of all winnings that are paid out. Commissions vary, usually around 2 to 5 percent taken off the winner’s net winnings.
The prices on exchanges may seem much better than they do on sportsbooks, but remember that if you win you are paying the exchange a commision!