Why Exchanges Exist

Betting Exchange Guide Contents
Exchange Intro | Why They Exist | The Best Exchanges | The Benefits | The Disadvantages | What the Numbers Mean

Betting Exchanges vs Traditional Fixed Odds Bookmakers

In the past if you wanted to place a bet on the outcome of an event you would have gone to a bookmaker, either on your high street, over the telehone or on the internet.

The bookmaker would quote you prices (odds) for each of the different winning outcomes. You would have the choice of either accepting the odds on offer, trying a different bookmaker for better odds, or simply not placing the bet as you don't think there is enough value in the price being quoted.

The introduction of the betting exchange eliminates the bookmaker. Individuals can visit a betting exchange and make one of several choices. The first choice is to decide whether to back a selection or lay a selection. The second choice is to decide whether to accept the odds on offer, or request odds at which you are willing to trade, in the hope that another individual will come along and accept your offer.

The Big Difference

Since individuals can now form bets amongst themselves there is naturally scope to bet on a much wider range of events. A traditional bookmaker works on the volume of bets being placed. Go to any single bookmaker, choose an event, look at the odds on offer and see if you can cover all outcomes so that you can't possibly lose. Don't spend too long trying that though, you will soon find that bookmakers don't allow themselves to get into this position as it would be commercial suicide. The opportunity would soon be exploited leaving the bookmaker with a potentially huge loss.

Instead the bookmaker will make sure that no single punter can cover all outcomes to guarantee a winning position. You can think of this as the bookmakers profit margin. Now think of the bigger picture, if you can't cover all bets to get a guaranteed win, then if enough people are betting in large enough volumes the chances are that each outcome will get covered by different people - it would be unusual if every single punter backed the same selection.

With lots of people backing the different outcomes the bookmaker is aiming to put himself in a position whereby whatever the outcome of the event, the amount they make on losing bets is greater than the amount they have to pay on winning bets.

Now lets think about this a little more closely. What happens if there are not many people betting on an event, it's fair to assume there is more likelihood that the bookmaker will have an uneven exposure, meaning that if a certain outcome is realised the bookmaker will be in a losing position. They don't like this possibility! This is one of the main reasons that traditional fixed odds bookmakers do not offer odds on some smaller events. Remeber though that there is an exception to every rule, Stan James have mentioned in the past that they will sometimes offer odds on smaller events even if it results in them making a small loss. What benefit do they get? Well, if we ever need to find a bookie covering an event they will be top of our list!

Back to the Betting Exchanges!

As we mentioned, the betting exchanges don't involve bookmakers, they involve individual people who, usually, are not concerned about covering all outcomes to make a profit. More likely they have an opinion on a particular event and they want to place a bet. Consequently, since volume of bets is no longer important betting exchanges are better placed to offer odds on even the smallest of events.

In Summary

Betting exchanges exist to provide a couple of new features:
1) Enabling individuals to lay outcomes
2) Providing a much wider coverage of events
3) Eliminating the need for a bookmaker who will price some profit margin into the odds on offer

Click for list of bookmakers