Betting exchanges have revolutionised the way we bet. Punters now have more ways to bet than ever before, but there are drawbacks.
Here we go through some of the benefits and dangers of betting exchanges.
You can lays bets
Pro: This is a great way for punters to bet on an event not happening. Many licks shorting stocks through spread betting it’s a tool for more sophisticated gamblers or just pessimists. It gives punters the chance to be bookies and make money from other gamblers losing bets.
Con: If you lay a long-odds bet you can lose some serious money. Unlike backing normal bets, where your loss is limited to your stake. If you lay a bet at odds of say 17 to 1 you can lose 17 times your punters matched stake. If that’s £10, your loss could potentially be £1,700 – ouch!
You get better odds
Pro: On the main markets you get much better odds than bookies as you are betting against punters rather than bookies. If you are betting on outright outcomes this is great news. For example, the odds of England versus Australia maybe 3.1 on Betfair but only 2.7 on Ladbrokes.
Con: The good odds stop on secondary markets. If you like betting on horse placing you’ll find it hard to get decent liquidity on the smaller betting exchanges like Smarkets. They may offer a good welcome bonus and be ok for headlines, but liquidity can dry up.
You can hedge your bets
Pro: You can book profits before an event has even started. If for example, you bet on Liverpool to beat Everton at 2.5 then before the game three of the top players are ill the odds could go up and you can lay off the bet at 5.
Con: Get the calculation wrong and you can end up losing on both sides of the bet. Also, in many circumstances, you can only lay off the stake meaning that you can basically cancel your bet and get a small profit. If the odds are moving in your favour it suggested an increased chance of winning.
Arbitrage between betting exchanges
Pro: You can exploit price and odd differentials on the same bet listed on different exchanges. You can simultaneously back and lay the same horse at the same time for a no risk win.
Con: Let’s be honest, you’re not the first person to think of this, and betting exchanges are made possible by big players and bookmakers providing liquidity to the main and secondary markets. The price differential should be so minute that it may not be worth the hassle unless you are getting really big. Of course, if there if something is miss-priced you could take advantage, bu then you run the risk of one exchange canceling your bet and then being left with one open leg.
Betting exchanges are neutral
Pro: Smarkets offers 2% commission whilst Betfair offers 5%. As you are betting against other punters and not the exchange it means that the exchange must make it’s money by taking a commission on winning bets. This is clearly a good thing as they actually want their gamblers to win.
Con: 5% is actually quite a high figure on bets, especially if you are winning on lays. It can quickly eat into your margins, especially if you are hedging and running multiple markets.
There are only a few betting exchanges
Pro: Only having a few players means that liquidity is not spread around too much and punters should always be able to find a match for their bets.
Con: Having so few players means that commission are still high. Even Smarkets offering the low 2% is still way above other industries. The more players that enter the market will help bring commissions down and odds up for punters.
