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Your Comprehensive Guide to Betting Exchanges

Published October 3, 2022 by Elana K

Betting exchanges are an exciting twist on traditional sports betting. As opposed to traditional bookmakers that determine wagers and odds themselves, betting exchanges allow gamblers to place wagers directly against each other and set their own odds. Exchanges are an intriguing option for experienced bettors as they give them more control over and cut out the middleman, i.e., bookmakers.

While sportsbook operators aren’t fans of betting exchanges, punters like them because the odds are better and the exchanges only charge a low commission on the net profit. Moreover, some bookmakers place restrictions on players who win significantly at sports betting. This can be frustrating since these players want to keep betting but aren’t allowed to for fear they’ll win too much money! Betting exchanges don’t place limits on wins. As long as a punter can find another who is willing to match their bet, they can keep placing wagers and winning.

History of Betting Exchanges

Betting exchanges were created in the early 2000s and their appeal quickly grew as players realized that they could maximize their own profits and cut out the middlemen. The first betting exchange, Flutter.com, was launched in the year 2000. It was followed quickly by Betfair. The former allowed punters to set their own odds in fractional form, while the latter only used decimal odds. Approximately a year later, the two companies merged to become the number one betting exchange on the market.

Of course, when a venture is successful, competition isn’t far off. Matchbook launched in 2004 and several others followed, initially gaining traction in Europe.

Toward the beginning of the phenomenon, betting exchanges only offered horse racing and football bets, but as the idea gained traction, more sports were added.

Today, Betfair is the most prominent betting exchange, followed closely by Ladbrokes and 1xBet. All of these betting exchanges partner with various club competitions like CONMEBOL Libertadores, the Scottish Professional Football League, Chelsea, Tottenham, Liverpool, and more.

How Do Betting Exchanges Operate?

Like traditional bookmakers, betting exchanges allow players to place bets on sporting events and matches. The difference is that in betting exchanges, players determine their own odds and bet accordingly.

There are several types of wagers that take place in betting exchanges:

• Back betting: When you bet on a certain outcome to happen.
• Lay betting: When you bet on a certain outcome not to happen.
• In-play betting: When you place bets in real-time, while the game is happening.

Here is an example of how a betting exchange works in real life:

If you want to bet on your favorite football team to win, you’ll become a back bettor. The exchange will then find a lay bettor to go up against you, at odds that you both agree upon. Whoever wins the bet gets the money from the player they bet against, minus a small commission taken by the betting exchange.

Lay bettors can also set their own odds. Once the bettors agree on a stake, the exchange determines their liability — how much they’ll need to pay if their bet loses. Liability is often larger than the stake. The exchange also determines the payout — how much money each bettor will make if they win. The payout is calculated by multiplying the stake by the odds.

Betting Exchanges vs. Traditional Sportsbooks

Both betting exchanges and traditional sportsbooks allow punters to bet on their favorite sports games, but the premise of each is very different.

Here you can see some of the key differences.

Pros and Cons of Betting Exchanges
Betting exchanges operate differently than traditional bookmakers, and thus may not appeal to everyone. If you’re a punter who loves betting on your favorite sports matches, you may wonder whether it’s worthwhile for you to use a betting exchange or a traditional bookmaker.

Below you can see several pros and cons of using a betting exchange. Weigh these factors carefully before making a decision.

Betting Exchange Strategies

As betting exchanges differ from traditional bookmakers, punters have come up with different betting strategies for them.

Here are some of the most popular strategies for betting exchanges:

• Matched betting: Betting on both outcomes of a game. This doesn’t need to take place on the same exchange, or even on the same type of platform. One bet can be placed on an exchange and the other (opposite) placed with a bookmaker. It takes practice to get the hang of it, but when done right, matched betting can yield up to 95% profit.
• Arbitrage betting: Betting on all possible outcomes of a game. Like matched betting, "arbing" can be done simultaneously on different exchanges and sportsbooks. The key is to choose platforms with varying odds. The drawbacks of this method are that bookmakers might red flag your account since they don’t like this type of betting. The second drawback is that this formula may guarantee wins, but they are usually not very big wins.
• Value betting: Calculating the best odds (by yourself or with software), which are often different from the odds shown by the bookmaker. Bookmakers calculate odds but also include their profit margin, which actually skews the odds. If you can calculate them yourself, you can get a clearer picture of the true likelihood of an outcome occurring. Betting exchanges are ideal for value betting since you can set your own odds from the beginning.

Are Betting Exchanges Legal Everywhere?

Betting exchanges are popular in Europe, India, and other regions, but have been rendered illegal in the U.S. due to the Federal Wire Act of 1961, which prohibits sharing gambling information across state borders.

In general, the United States has been slow to legalize online gambling and sports betting, whereas Europe and certain regions in Asia have been quicker to allow it and regulate it.

In 2018, the U.S. Supreme Court ruled that states could make their own decisions regarding online sports betting, and New Jersey has emerged as a trailblazer in these arenas. Therefore, it’s no surprise that it launched Prophet Exchange in August 2022, the first betting exchange in the U.S.