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Betting exchanges - how they work

Background:

Fixed odds bookies, or traditional bookies have been around since the creation of the world, or at least it feels like it! Their dominance of the market is plain for all to see with adverts all over the Internet and a presence on almost every high street across the UK, the big 3 being William Hill, Ladbrokes and Coral.

In 2000, almost as a signal to mark the new millennium, The Sporting Exchange Limited launched a revolutionary new product into the crowded betting market - Betfair.

Picking up where Flutter.com (the original betting exchange) left off Betfair, through clever Marketing and great PR, quickly established itself as the number 1 destination on the Internet for exchange bettors. Competition has now risen to challenge Betfair's dominance in the shape of Betbull and Betdaq.

How exchanges work:

Traditional bookies price up sporting events and set the odds; these odds include the bookies margin, typically 10-20%, which is one of the ways that bookies make their money (click here for more about this). These bookies control the odds on an event and hold your initial stake, hopefully giving it back to you after the event along with your winnings.

Unlike traditional bookies, betting exchanges do not set the odds on a sporting event, the punter does. Simply put, betting exchanges offer a place for punters to come together and bet between themselves on any given event, allowing individuals to set the odds they want to bet at (backing) or to take bets on an event, acting as the bookmaker (laying). The betting exchange then charges punters a commission on any winnings, typically between 2-5%, depending on how much you use them.

This all means that rather than paying 10-20% on your bets in the form of the bookies margin, you only have to pay the 2-5% commission on any winnings. The bottom line being that you'll generally get better (longer) odds on an exchange then you would with a traditional bookie.

Backing and laying:

There are two types of punters on an exchange - the backer, or the layer.

Backing - this is the traditional side of betting, you accept the odds offered for a particular team/horse/dog to win. Simple.

Laying - the other side, layers offer odds on a particular team/horse/dog losing, they in effect become the bookie. Controversially, this allows you to 'bet' on a team/horse/dog losing and is the big difference that exchange betting offers the punter.

Laying carries great risk, you could end up losing and having to pay out on the odds you've offered for the amount you've 'bet' on the losing side - a stake of £50 on a horse to lose at 12.00 (11/1) which then wins means you're paying out £600. Caution is advised!

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