Betting Exchange: Transforming Online Wagering for Operators

Consider a betting world in which the house does not always win because the house does not play the game. 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, Ladbrokes and William Hill. 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). 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. Exchanges allow bets to be made in-running or in-play (i.e. to make bets while a race or match is in progress).

Traders and arbitrageurs are often credited with “seeding” markets with more competitive prices than would be present without them. This suits the trader’s high turnover, low profit strategy provided he bets exclusively with a single exchange. 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. 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. This ensures that simultaneously backing or laying all selections in a market will not normally guarantee a profit.

Under a sportsbook model, you engage in risk with each wager. Exchange bettors have an extended lifecycle and longer lifetime value (LTV) since they are more involved, more educated. That is not just good UX to operators, it is a retention driver. This peer-to-peer (P2P) model inverts the hierarchical plane, allowing the users to set interaction rules. To illustrate this, one person may betting companies not on gamstop place a bet on Manchester United to win, and the other person may lay that bet—becoming the “bookie.” They are paired by the exchange system that maintains the ecosystem. These firms argue that granting “anonymous” punters the ability to bet that an outcome will not happen is causing corruption in sports such as horse racing since it is much easier to ensure a horse will lose a race than to ensure that it will win.

Furthermore, customers can monitor the odds on the exchanges’ user-friendly platforms independently. 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. 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.

The main drawback is the situation that can happen to players, which is that they cannot find the odds they want. Therefore, there is no option for a player to be limited or suspended by the platform because the more bets you place, the more the betting exchange makes a profit for itself. In general, the odds are always a bit higher on Betting Exchange sites because the other players set the odds, and these players try to be competitive with high odds.

As for the shortcomings of playing in betting exchanges, there are not many of them. Also, in every match, you can be a player and a bookmaker as many times as you want. If the result of your selected game at halftime is a draw, the odds on the same outcome will generally be around 2.00.

Instead of risking payouts, the platform matches users’ opposing bets and earns commission on winnings. 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. The bookmaker offering this bet to the player will choose this option. 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. The last drawback of betting exchanges is the impossibility of playing combined and system tickets.

Operators can attract seasoned bettors by offering competitive commission rates, advanced trading tools, and educational resources on back and lay betting. High-LTV traffic fits with the betting marketplace, which has transparent odds and a sharp player population. This is where the beauty lies—it is the players who determine the odds and the stakes. A betting exchange is a marketplace for customers to bet on the outcome of discrete events. Imagine that you played a draw in one football game with odds of 3.00 and a stake of €100.