The idea behind betting exchanges is quite simple. It is to match up someone who wants to bet on something at a given price with someone else who is willing to offer that price. This way both sides are happy, at least until the result is known.

The person who bets on the event happening at a given price is the backer. The person who offers the price is known as the layer. In effect, he is laying the bet in exactly the same way as a bookmaker does.

The advantage of this form of betting is that it essentially cuts out the formal bookmaker, and thereby the bookmaker’s margin. It also allows everyone on the exchange to act as a bettor (backer) or bookmaker (layer) at will. Indeed, it is possible to back and lay thesame event.

There are drawbacks, however, to this type of betting, and a primary one is that the operator of the exchange deducts a commission, normally from winning bets, and usually up to 5%. The other drawback is that there may not be enough people interested in acting as a bookmaker on certain events. Even where there are people willing to lay bets, sometimes these are to very small sums.

The betting exchanges certainly increase the choice on offer, however, to those interested in making money from betting.

There really is excellent value to be had from betting on the exchanges, but only a very small proportion of those who bet know how to use them.

Those who are interested in learning will find it surprisingly simple once the initial unfamiliarity has worn off, and great fun. The idea is that you get to act as a bettor or a bookmaker, or both at the same time.

Backing on the exchanges.

Say you are considering trading the outcome of a match between Everton and Liverpool. Your first consideration is whether the odds about a Leeds win, an Everton defeat or a draw are in your favour.

The major betting exchanges present you with the three best odds and stakes which other members of the exchange are offering. For example, for Everton to beat Liverpool the best odds on offer might be 3 to 1 (4.0 in decimal notation), to a maximum stake of $80, 11 to 4 to a further stake of $100 and 5 to 2 to a further stake of $500. This means that you can stake up to a maximum of $80 on Everton to beat Liverpool at odds of 3 to 1, although you could bet a further $100 at 11 to 4 and a further $500 at 5 to 2. These odds, and the amount you can stake, may have been offered by one or more other clients who believe that the true odds are longer than they have offered.

Say you think that the true odds of Everton winning should be 5 to 2, you may decide to stake $80 at the 3 to 1 and a further $100 at 11 to 4, since both these odds are longer than you think the true odds are. If you wish to be cautious, however, you may decide to stake a smaller sum on the outcome.

Before staking the money, however, you should check that no bookmaker is offering as good a deal, or better. This is important, since there is usually a commission deducted from winnings on the betting exchanges, whereas returns with the bookmakers are deduction-free.

An alternative option available to potential backers is to enter the odds at which you would be willing to place a bet, together with the stake you are willing to wager at that odds level. This request (say $50 at 4 to 1) will then be shown on the request side of the exchange, and may be accommodated by a layer at any time until the event is over.

Laying on the exchanges.
To lay a bet you set the odds you wish to offer and the stake you are prepared to accept at those odds. Say you think it unlikely that Everton will win, you may decide to lay Everton at, say, 3 to 1, instead of backing them. Perhaps you are willing to lay Everton at 3 to 1 up to a stake of $20. This means that you are willing to accommodate a backer (or backers) up to a total of $20 at 3 to 1. If your bet is fully matched, you will be liable to pay out $60 (3 x $20) if Everton go on to win, but you keep the $20 if they lose or draw.