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A betting exchange is a marketplace for customers to
bet Black Entertainment Television (acronym BET) is an American basic cable channel targeting African-American audiences. It is owned by the CBS Entertainment Group unit of Paramount Global via BET Networks and has offices in New York City, Los ...
on the outcome of discrete events. Betting exchanges offer the same opportunities to bet as a
bookmaker A bookmaker, bookie, or turf accountant is an organization or a person that accepts and pays off bets on sporting and other events at agreed-upon odds. History The first bookmaker, Ogden, stood at Newmarket in 1795. Range of events Bookm ...
with a few differences.
Gamblers Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three elem ...
can buy (also known as "back") and sell (also known as "lay") the outcome, and they can trade in real-time throughout the event, either to cut their losses or lock in profit. Bookmaker operators generate revenue by offering less efficient odds. Betting exchanges normally generate revenue by charging a small commission on winning bets.


History

The first betting exchanges were Matchbook, flutter.com and
Betfair Betfair is a British gambling company which operates the world's largest online betting exchange. Its product offering also includes sports betting, online casino, online poker, and online bingo. Founded in 2000, the business is split int ...
. Flutter and Betfair merged in 2001 with Betfair chosen as the primary betting exchange. The flutter.com site ceased operations in January 2002. Since then Betfair has maintained a leading position in the betting exchange market. BETDAQ (which also traded as the 'Ladbrokes Exchange') is believed to be the second largest betting exchange and it had an estimated 7% share of the betting exchange market in 2013. BETDAQ was owned by Ladbrokes plc (now
Ladbrokes Coral Ladbrokes Coral is a British gambling company founded in 1886. Its product offering includes sports betting, online casino, online poker, and online bingo. The business is split into two divisions, UK and International. UK operations are c ...
) following their acquisition in February 2013, but has since been sold at the end of 2021 to Exchange Platform Solutions Limited. In India and Bangladesh, there is another betting exchange with the brand name Baji


Exchanges and traditional bookmakers compared

Most exchanges make their money by charging a commission which is calculated as a percentage of net winnings for each customer on each event, or ''market.'' Gamblers whose betting activities have been restricted by bookmakers (normally for winning too much money) are able to place bets of unrestricted size as long as one or more opposing customers are willing to match their bets. The
odds Odds provide a measure of the likelihood of a particular outcome. They are calculated as the ratio of the number of events that produce that outcome to the number that do not. Odds are commonly used in gambling and statistics. Odds also have ...
available on a betting exchange are usually better than those offered by bookmakers, in spite of the commission charged, because there are smaller
overround In gambling parlance, making a book is the practice of laying bets on the various possible outcomes of a single event. The phrase originates from the practice of recording such wagers in a hard-bound ledger (the 'book') and gives the English langu ...
s. In spite of these advantages, exchanges currently have some limitations. Because exchanges seek to concentrate their liquidity in as few markets as possible, they are not currently suited to unrestricted multiple parlay betting. Betfair does offer '' accumulators'' but these are limited in number and type: users cannot determine the outcomes contained in accumulators themselves. Some exchanges such as BETDAQ also offer '' multiples'' but the exchanges act in the same manner as traditional bookmakers in doing so (i.e. they themselves and not a customer act as the layer of such bets). Exchanges also tend to restrict the odds that can be offered to between 1.01 (1 to 100) and 1000 (999 to 1).


Backing and laying

Traditionally betting has occurred between a customer and a
bookmaker A bookmaker, bookie, or turf accountant is an organization or a person that accepts and pays off bets on sporting and other events at agreed-upon odds. History The first bookmaker, Ogden, stood at Newmarket in 1795. Range of events Bookm ...
where the customer 'backs' (bets that an outcome will occur) and the bookmaker 'lays' (bets that the outcome will not occur). Betting exchanges offer the opportunity for anyone to both back and lay. The liability is the amount one can lose in the worst-case scenario. For example, if someone thinks that Team A will win the competition, they may support that choice. The bookmaker offering this bet to the player will choose this option. Both sides will agree on the sponsor's bet and odds. If the team loses, the layer/bookmaker retains the patron's bet. If the team wins, the layer will pay the sponsor the winnings according to the agreed odds. Since every bet you make requires a patron and a layer, and the exchange of bets is not a participant in the bets made on it, any exchange of bets requires both patrons and layers.


In-play betting

Exchanges allow bets to be made ''in-running'' or ''in-play'' (i.e. to make bets while a race or match is in progress). This feature is generally restricted to the most popular events for which widespread, live television coverage is available. Whereas non-in-play bets are entered into the system immediately after being placed by the customer, when betting in-play a time delay might be instituted so as to make it somewhat more difficult for unscrupulous customers to accept offers for bets that for whatever reason have suddenly become highly favorable. Markets may also be actively managed by the operator. In this case, betting will be briefly halted after each occurrence likely to cause a substantial change in the odds (for example, in
association football Association football, more commonly known as football or soccer, is a team sport played between two teams of 11 players who primarily use their feet to propel the ball around a rectangular field called a pitch. The objective of the game is ...
matches
goals A goal is an objective that a person or a system plans or intends to achieve. Goal may also refer to: Sport * Goal (sports), a method of scoring in many sports, or the physical structure or area where scoring occurs ** Goals, the goal frame in ...
,
penalty kick A penalty shot or penalty kick is a play used in several sports whereby a goal is attempted during untimed play. Depending on the sport, when a player commits certain types of penalties, the opposition is awarded a penalty shot or kick attempt. ...
s and sendings off would warrant such suspensions), so that unmatched bets can be cancelled.


Traders and arbitrageurs

Arbitrageurs (colloquially "arbers") attempt to simultaneously bet on all possible outcomes to make a guaranteed profit. A trader operates similarly to an arbitrageur but is willing to take on extra risk and bet on events where no immediate profit is possible. A trader hopes to make a profit by closing out the bet at a later stage at more favorable odds. Closing out a bet for profit involves collecting more money by laying than is paid out when the outcome is backed back. If the event does not occur then no money is lost, alternatively if a trader is able to lay a higher stake at shorter odds than his back stake then he can theoretically guarantee the same amount of profit regardless of the outcome. On the other hand, if the odds move against the trader he might elect to close out the bet so as to minimise his loss. Trading can be done either before the start of an event or while the event is in progress if in-play betting is offered. Compared to trading before the event commences, trading in-play usually involves both greater risk and also the potential to make more money. Traders can make money by betting exclusively with betting exchanges or bookmakers, or by combining the two. The trader could lay at a low amount on a betting exchange and then back at a higher price with a bookie or another exchange. This must be done simultaneously to guarantee a profit or else the opportunity could quickly cease to exist with liquid markets quickly correcting prices and bookies trying to avoid being arbitraged. Most exchanges post the book percentages (colloquially known as the
overround In gambling parlance, making a book is the practice of laying bets on the various possible outcomes of a single event. The phrase originates from the practice of recording such wagers in a hard-bound ledger (the 'book') and gives the English langu ...
or "vig") prominently for each market. These percentages are essentially the cumulative implied percentage chances of the odds on offer for each selection and for a single winner market will usually add up to more than 100% for all back selections (but only marginally over in a competitive market), and under 100% for the lay selections. This ensures that simultaneously backing or laying all selections in a market will not normally guarantee a profit. Occasionally though (especially in circumstances where odds are prone to change rapidly) exceptions will arise where offers to back or lay all selections will be made that if simultaneously and cumulatively accepted at exactly the right stakes would permit an arbitrageur to guarantee a profit. However, such phenomena tend to correct themselves very quickly and exchanges generally try to dissuade customers from attempting to take advantage of such circumstances. Furthermore, for a trader or arbitrageur to combine different exchanges and/or bookmakers for a profit requires a substantial price differential if a profit is in fact to be made once the exchange's commission is taken into account. Even between exchanges, such large price differences are rare, brief and usually involve relatively small stakes. Fortunately for traders, almost all betting exchanges charge commission on net winnings only and charge no commission at all in the event of a net loss. This suits the trader's high turnover, low profit strategy provided he bets exclusively with a single exchange. Unless a trader is willing to accept the risks inherent with in-play trading, the profit or loss for a trader will typically be no more than 10% of the total amount of his combined back and lay stakes in any particular market, so to make meaningful amounts of money a trader needs to commit a relatively large amount of capital. The trader therefore runs the risk of having a large unwanted bet on an event if he is unable to close his position before the event starts (e.g. if there are technical problems with his Internet connection or with the exchange). Traders and arbitrageurs are often credited with "seeding" markets with more competitive prices than would be present without them. However, Betfair's imposition of a premium charge in September 2008 was seen by some as being directed at the most skilled traders, whom it is speculated trade for a loss very infrequently and thus would otherwise pay little in the way of commission. In response, rival exchanges have pledged not to introduce similar charges, perhaps in hopes of enticing traders to move their business (and capital) elsewhere.


Controversy

The fact gamblers can lay outcomes on the exchanges has resulted in criticism from traditional bookmakers including the UK's "Big Three" -
Gala Coral Group Gala Bingo is an online bingo and casino offering under the ownership of Entain. Gala Bingo was created in 1991 as a division of Bass plc. It later became an independent company, and then became the Gala Coral Group after acquiring Coral Eur ...
,
Ladbrokes Ladbrokes Coral is a British gambling company founded in 1886. Its product offering includes sports betting, online casino, online poker, and online bingo. The business is split into two divisions, UK and International. UK operations are c ...
and William Hill. These firms argue that granting "anonymous" punters the ability to bet that an outcome will not happen is causing corruption in
sports Sport pertains to any form of competitive physical activity or game that aims to use, maintain, or improve physical ability and skills while providing enjoyment to participants and, in some cases, entertainment to spectators. Sports can, ...
such as horse racing since it is much easier to ensure a horse will lose a race than to ensure that it will win. Exchanges counter that, while corruption is possible on any gambling platform, the bookies' arguments are motivated not by concern for the
integrity Integrity is the practice of being honest and showing a consistent and uncompromising adherence to strong moral and ethical principles and values. In ethics, integrity is regarded as the honesty and truthfulness or accuracy of one's actions. In ...
of sport but by
commercial Commercial may refer to: * a dose of advertising conveyed through media (such as - for example - radio or television) ** Radio advertisement ** Television advertisement * (adjective for:) commerce, a system of voluntary exchange of products and s ...
interests. Exchanges also assert they are well aware of who their customers are and keep a complete record of all betting activity in case of enquiries, whereas high-street bookies take anonymous cash bets. Furthermore, customers can monitor the odds on the exchanges' user-friendly platforms independently. Exchanges and the authorities can be immediately alerted should suspicious betting patterns become apparent. Some exchanges have signed agreements with governing bodies of sport including the Jockey Club, with whom they insist they will co-operate fully if the latter suspects corruption to have taken place. Exchanges have co-operated with police investigations when asked to do so, sometimes leading to arrests.


See also

* Betting exchange companies *
Bookmaker A bookmaker, bookie, or turf accountant is an organization or a person that accepts and pays off bets on sporting and other events at agreed-upon odds. History The first bookmaker, Ogden, stood at Newmarket in 1795. Range of events Bookm ...
*
Gambling Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...
*
Matched betting Matched betting (also known as back bet matching, lay bet matching, or double betting) is a betting technique employed by individuals to profit from free bets and incentives offered by bookmakers. Its proponents considered it risk-free in theory-b ...
*
Parimutuel gambling Parimutuel betting or pool betting is a betting system in which all bets of a particular type are placed together in a pool; taxes and the "house-take" or "vigorish" are deducted, and payoff odds are calculated by sharing the pool among all winni ...
*
Prediction market Prediction markets (also known as betting markets, information markets, decision markets, idea futures or event derivatives) are open markets where specific outcomes can be predicted using financial incentives. Essentially, they are exchange-trad ...
*
Sports betting Sports betting is the activity of predicting sports results and placing a wager on the outcome. The frequency of sports bet upon varies by culture, with the vast majority of bets being placed on association football, American football, basket ...
*
Spread betting Spread betting is any of various types of wagering on the outcome of an event where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome, such as fixed-odds (or money-line) betting or parimutuel betting. ...


References

Gambling technology Wagering