A betting exchange in its most basic form is essentially a platform which allows members to place bets against each other rather than against a bookmaker. This usually increases the betting odds for the bettor and is generally seen as being less risky than ‘old-school’ bookmaker betting.
The basic setup of a betting exchange is that it matches up opposing sides of a specific wager. The betting exchange thus acts as a middleman between the opposing betters. The person betting on the win is usually called the ‘backer’ and the person betting on a loss is called the ‘layer’. Technically, the ‘layer’ is taking on the role of a bookmaker as they are taking the ‘backer’s’ stake and agreeing to pay out the odds if they win.
The betting exchange, as the middleman, will handle all the money involved and will make sure that the ‘layer’ has enough money to pay out if the ‘backer’ wins. No money is passed directly between the bettors and all winnings and stakes are handled through the betting exchange. The exchange simply makes money by taking a small commission from whoever wins the bet.
Online sports betting and online betting exchanges are extremely similar and most websites that support the one will also have a feature where you can engage in the other. Placing a bet in a betting exchange works mostly the same as taking out a bet with a bookmaker – you simply choose your bet and place your stake on the chosen odds. The only difference is that another bettor is technically taking your wager – not a bookmaker.
Another small difference is the odds that are available. When using a bookmaker, you can only take the odds being offered, but in a betting exchange, you can choose your own odds! You can enter a proposed bet and odds and then wait to see if another bettor will take those odds, thus making you a sort of ‘bookmaker’. As soon as someone chooses your wager, your bet will be debited from your account and sometimes the “winning funds” (your potential payout to the ‘backer’) will be put on hold until the outcome of the bet. If you win, you will get the ‘backer’s’ stake as well as your own stake back (and any funds on hold will be paid out to you). If you lose, the ‘backer’ will receive your stake from the betting exchange as well as the payout that will then be taken from your account. Making your own odds, however, means that you have to wait for someone to bet against them, and if no one does, your bet is simply refunded and you neither ‘win’ nor ‘lose’.
The main advantage of exchange betting is, of course, that you can bet on who is going to lose instead of win, which you can’t usually do against a bookmaker and creates lots more opportunities for winning. The other major pro is that you usually find a lot better odds at online betting exchanges instead of with bookmakers – and even slightly better odds still could have a huge impact on your overall profit!