Many people who are new to online betting exchanges such as Betfair and Betdaq can struggle to understand exactly what a betting exchange is. A common misconception is that a betting exchange is the same as a bookmaker. This fundamental misunderstanding can lead to problems when learning how to use the exchanges profitably.
To help understand exactly what a betting exchange is, it is helpful to compare it with the stock exchange rather than with a bookmaker.
The stock exchange is a regulated marketplace in which registered users can buy and sell shares in listed companies. Prices on the stock exchange aren’t set by the exchange themselves, they are determined by what users are prepared to pay.
Stock exchange users don’t know who they are buying and selling shares from, they simply see the current buy and sell prices for a share, and decide whether they want to accept them or not.
Similarly, the betting exchange is simply a marketplace in which users can buy and sell bets on listed betting markets. Prices or odds are not set by the exchange, they are determined by whatever odds users are prepared to offer and accept.
As a betting exchange user you won’t know who you are betting against, and the other person won’t know they are betting against you. All you would both know is that someone out there has a different opinion, the odds and stakes are agreed in advance, and the betting exchange will pay the winner once the result is confirmed.
People and organisations use the stock exchange in different ways. Some chess betting look only to buy shares with a view to keeping them and banking any dividends that they are due. Others try to profit by trading – predicting the direction in which share prices will move, and buying and selling at different prices.
Likewise, betting exchange users use the betting exchange in different ways. Some use the exchange simply to place outright bets, just as they would do with the bookmaker. The reason that they would do this at somewhere like Betfair rather than using a high street bookmaker is that they will be able to take advantage of better odds.
Other users try to predict which way the odds will move, and profit by trading – i.e. buying and selling the same bet at different prices. Therefore, just like bookmakers, traders effectively make a profit at the gamblers’ expense.
Furthermore, whereas a bookmaker will only allow a customer to place one sort of bet – a back bet that an outcome will happen – exchanges enable users to place lay bets as well. A lay bet is the opposing bet to a back bet, and is therefore a bet that an outcome will not happen. This is the equivalent to buying or selling a share.
So whilst it is possible to use a betting exchange in the same way as you would use a bookmaker, there are many more possible ways to use it, many of which can be far more interesting and profitable.
Certainly, gaining a full understanding of the fundamentals of the exchange is a key prerequisite for anybody looking to make a profit from it on a regular basis.