What is a Betting Exchange?

What is a Betting Exchange? Betting exchanges are becoming extremely popular in the world of sports betting. But, what is a betting exchange? We break down everything you need to know about betting exchanges.
Wed, February 23, 6:37 PM EST | 10 min read

What is a Betting Exchange and how do they work?

As sports betting options in the US expand, so do the interests of bettors. One of the most common questions for newcomers is, “What is a sports betting exchange?” Simply put, betting exchanges are platforms that make matched betting possible and allow bettors to act like bookmakers.

So, how do betting exchanges work? Betting exchanges for US players allow punters to back a bet (buy-in) or lay a bet (sell). This type of platform allows them to earn the majority of their revenue. This is particularly valuable for bettors who are sick of inefficient odds at sportsbooks.

Keep reading to see a betting exchange explained below. 

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Pros and Cons of Betting Exchanges

Betting exchanges let punters take odds into their own hands. The vast majority of matched bettors use betting exchanges in order to optimize their winnings. For this reason, those looking to see a betting exchange explained will first need to learn about matched betting.

Matched betting is a form of sports betting in which punters use deals from sportsbooks to leverage separate outcomes of the same bet in order to ensure a profit. It might sound complicated, but it’s entirely legal and used by seasoned punters year-round.

So, what is a betting exchange in more simplified terms? It’s a platform used primarily by matched bettors and bettors in general who want to post their own odds (also called a lay bet). Let’s take a closer look at the pros and cons of betting exchanges for US players.

Pros

  • Users have access to varied and competitive odds rather than the limited lines offered by sportsbooks
  • Users can set their own odds
  • Those who use matched betting are guaranteed to turn a profit, so long as they double-check their work
  • There are no account limits or caps for winners since betting exchanges make their money through commission (more on this below)

Cons

  • Bets might not always be matched, as they’re driven by supply and demand rather than sportsbooks
  • Less mainstream sports see less coverage
  • Betting exchanges don’t offer parlays, while accumulative bets tend to be limited

Difference between a sportsbook and betting exchange

Those hearing a betting exchange explained for the first time might think it sounds incredibly similar to a traditional sportsbook. So, what is a betting exchange in comparison to a sportsbook? The main differences apply to the odds offered and the way each type of company makes its money.

A traditional sportsbook relies on pundits, experts, and even the occasional AI-based algorithm to set odds. These odds are created according to the most likely outcome and how bettors are backing certain markets, which means it can be tough to earn money by backing an underdog.

Sportsbooks make money by creating specific margins in their odds. This means sportsbooks take home money on each bet through a small fee called ‘juice’ or ‘vig’. A standard margin is about five percent. Compared to this, how do betting exchanges work?

As mentioned above, a betting exchange is a marketplace that lets users set their own odds and attract bettors or bet on another user’s lines. Betting exchanges for US players make money by taking a cut of each winning bet, which tends to be between two to five percent of the total payout.

There are key differences between each type of platform that certain bettors may or may not find attractive. With a betting exchange explained from a user’s perspective, what are some advantages of both sportsbooks and betting exchanges?

Benefits of traditional sportsbooks

  • Focused on sports-based statistics and insight
  • Ability to accumulate bets and build parlays
  • Substantial payouts for underdog wins

Benefits of betting exchanges

  • Can be used to ensure and maximize profits consistently
  • Standardized formulas are ideal for the mathematically inclined
  • More efficient odds offered than traditional bookmakers

Back Bet & Lay Bet 

Betting exchanges use different vocabulary than traditional sportsbooks. Two terms all newcomers will need to learn are back bets and lay bets. A back bet is used to decide which team will win; a lay bet is used to cover all other possible outcomes. In other words, a lay bet covers which team won’t win.

But, how do betting exchanges work in terms of wagering on outcomes if there aren’t sportsbooks involved? Let’s cover an example from the NBA.

If a punter wants to back the Warriors in a game against the Lakers, they’d be betting on the Warriors to win. Conversely, if a punter wants to lay a bet in the same game, they’d be wagering that the Lakers win or that the game ends in a draw. In other words, they’re betting on the Warriors not to win. The lay bet, therefore, covers two aspects of the bet: a Warriors’ loss or a draw.

With a traditional sportsbook, a punter is always backing the bet on offer from oddsmakers. However, in betting exchanges, users can create their own bets, as well as back bets and lay bets from others. So, if someone asks, “What is a betting exchange?” The simple answer is that it’s a marketplace that lets punters take advantage of the most lucrative odds on offer—or even set them themselves.

Matched Betting

One of the biggest reasons punters use betting exchanges is to facilitate matched betting. As mentioned above, matched betting (also known as double betting) is when users leverage offers from different sportsbooks to maximize their returns. To do this, a user would first sign up for a bonus deal at a sportsbook and then use their free money to wager on the outcome of a game. A betting exchange will be used to back the opposite outcome from the sportsbook.

Betting exchanges for US players provide a marketplace to find a similar wager as the one they backed from a sportsbook with free bet money and then ‘lay’ a bet against it. This places them in the role of ‘bookmaker’, which lets them leverage the offer from their traditional sportsbook to cover the opposite outcome and cover themselves no matter the result.

Let’s cover a betting exchange explained from this angle: sign up with a new sportsbook to use a bonus deal to place a ‘back bet’, then log in to a betting exchange to play a ‘lay bet’ on those same odds. No matter what happens, a punter wins. There are even handy formulas that make calculating back and lay bets for matched bettors easy.

Betting Exchange Trading Tips

Though they’re still playing catch-up to traditional sportsbooks in terms of popularity, betting exchanges are expected to become a more popular aspect of the industry. Ready to get started with betting exchanges today? Keep reading for three tips on betting exchange trading.

  1. Take advantage of an academy. Traditional sports betting takes time to understand—betting exchanges and learning how to trade on them can take even longer. However, most companies are happy to show you the ropes. For example, Betfair, one of the most popular betting exchanges in the world, offers a free academy. Don’t worry about learning everything at once (see tip number two).
  2. Take notes. An academy and beginner guides will get you started on your journey to answer and understand the question, “What is a betting exchange?” However, experience is one of the best ways to learn which strategies and habits work for you. Don’t worry about a few pitfalls—just be sure to take notes so you can stay on top of what you’ve learned.
  3. Shop around. Though not everyone using betting exchanges will be interested in matched betting, most are. Be sure to shop around for the latest deals from sportsbooks, as well as sign-up bonuses from betting exchanges. And be sure to sign up for email lists—some exclusive offers are sent to inboxes only.

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