Betting Exchanges Explained: How Betfair Works

Lee Jackson by Lee Jackson | Published: June 28, 2019

Betfair and other betting exchanges are a different type of beast compared to traditional betting operators. With a betting exchange, you are not dealing with the middleman, namely the bookmaker, who would be the one dictating the odds, setting their own profit margins and holding your money.

At a betting exchange, you are basically a trader yourself. That is because you are betting against other punters. You can think of it as a marketplace really where you get to choose the odds that are right for you. You can do this by setting your own odds on a market and then waiting for someone to match that bet. Of course, if you are setting a ridiculous price then it’s not likely to be matched.

Or you can just go and take odds on a selection that is already actively out there. Another of the key differences between an Exchange and traditional sportsbook is the ability to both Back and Lay. When you Back, you support a particular outcome to happen. When you Lay, you support a particular outcome NOT to happen.

BACKINGLAYING
Picking a selection to win an event, such as Brazil winning the World Cup.

Liability = Your stake is your liability, as that is the only thing that you are risking.    
Picking a selection to not win an event. Laying Brazil at the World Cup is saying that they won’t win the title. Or if you like, any other team winning but Brazil.

Liability = In Laying you are only trying to take the Backer’s stake. You are liable for someone else’s profit if your bet loses.

Because there are no profit margins set by bookmakers in any of this, betting exchanges do typically offer better value than those traditional operators. Instead of dealing with those bookmaker profit margins, players on betting exchanges deal in commissions paid on winning bets. One of the other popular features of a betting exchange is the moving and adjusting of positions in sporting events.

Even if you have backed a team to win a football match outright, as things change in the game, you may see opportunities while the action is on-going to support a scenario where the other team wins. Then by doing so, whichever team does happen to win the fixture, you will be getting some kind of return. The flexibility allows you to create situations where you will earn a profit regardless of the outcome or at least, through live trading, reduce your losses.

Note that Betfair do also operate a traditional sportsbook, but the two are very separate entities and have nothing to do with each other.

If you are a new Exchange customer, use a Betfair promo code when signing up.

How to back and lay bets on the Betfair Exchange:

As you can see from the following screenshot for a cricket match between New Zealand and Australia, you have different options available to you.

Blue Column: The blue column and those to the left of it, are prices that are available to Back a selection at. Those are prices which have actually been set by Layers. The best current available odds are presented in the blue column. You can see above that Layers have been prepared to risk at 1.54 and 1.55 odds that Australia won’t win. So those are options/odds which you could back Australia at.

Pink Column: The pink column are prices that are available to Lay the selection at, and therefore are prices which have been set by Backers. The best current price to Lay a selection at is the one in the pink column itself.

In this example of the 1.56 odds to Back Australia, the number beneath it means how much of your stake is likely to be matched immediately. So anything less than a £793 stake is likely to be matched immediately. Anything above that as a stake, then part of your bet would be unmatched at the time.

Matching Bets

If you Back a selection, then you are matching someone who has posted a Lay option at the given odds. Similarly if you Lay a selection, you are matching someone who has Backed that option at the given odds. An Exchange is peer to peer betting.

Backing Australia to Win

At the time the best price on Australia winning was 1.56. But you can also see to the left, other prices that Layers have put out there to try and get matched. If as a Backer, you weren’t particularly happy with any of those odds, you can create your own, which is a huge feature of a Betting Exchange. Let’s say you wanted to back them at 2.00 odds.

You simply make your selection on Australia and then in your bet slip, adjust the odds. A stake (called Liability – how much you would stand to lose) would be entered and you would wait to see if anyone was ready to match that (unlikely). Remember someone has to match your bet for it to be active, meaning someone has to be prepared to Lay Australia at those odds.

Backing Australia to Win Example on Betfair Exchange

Laying New Zealand

New Zealand were heavy underdogs for this game. Which means that they were less likely to win. So instead of supporting Australia to win, you could Lay New Zealand, meaning that you are expecting the outcome of the match to NOT end in a win for them.

The best current price in this example was 2.8 on New Zealand. But Laying works in a slightly different way to Backing. You don’t just put down the stake and that is what you are liable for.

Laying New Zealand Example on Betfair Exchange

In the example, £5 of the Backer’s stake is matched at the 2.8 odds in the bet. The Liability on that is at £9.00 which is how much will be taken from your account when you strike this bet. Why?

That is your worst case scenario, how much you will lose if your Lay bet is not correct. The only thing that you can win in a Lay bet is the other’s person’s stake. So you are trying to win £5.00. You are risking £9.00 to get it. If New Zealand don’t win, you get your Liability returned along with the stake that you won from the Backer.

But in this scenario, if New Zealand were to win then you are in trouble because then you are responsible for the payout on a £5 stake at 2.8 odds. That’s your £9 Liability. The more of a Backer’s stake you try and take, the higher your Liability (risk) is going to be.

Betfair Betting Exchange Commission

Just sticking with the popular Betfair, let’s take a look at how commission on a betting exchange works. As mentioned, they don’t run the Bookmaker Profit Margins in their odds, because basically the odds that you see on the exchange are not set by Betfair.

You pay commission on winning bets on betting exchange. That can be a Back bet or a Lay bet, it doesn’t matter. Betfair use a Market Base Rate (based on customer location) to calculate the rate of commission. That Market Base Rate in the UK and Ireland is 5%.

Betfair Betting Exchange Commission Example

As an example of a Commission payout, we backed Crystal Ocean at 7.0 odds with a £10.00 stake. That, as can be seen in the bet slip would reward a nice £60.00 profit. With Crystal Ocean winning the race you would simply take your NET winnings, in this case, 60.00 and minus 5% of that total from it.

5% of £60 is £3 so from that win, it is £3 that would be going on Commission. So that’s where you are at. The more that you bet on the Exchange, the more that you are able to bring that commission rate down by earning points (see next section). You will find that across the board, base commissions will vary at different exchanges. This is generally between 1.5% to 6% range depending on markets, sometimes on the type of bet (Back or Lay) and offers.

What is the Betfair Premium Charge and can it be avoided?

Note that when you bet at the Betfair Exchange you will earn points (even on losing bets). Those points will be tallied up each week and they will earn you a Commission discount which is capped at 20% but you can get even higher (up to 60%) for ID verified accounts.

You will pick up one point for every 10p of a commission that you have paid on winning bets. You will also earn one point for any commission that you would have paid out on in the instance of a net loss on a losing bet.

Betfair Premium Charge and Commission Discount

The famous Betfair Green Book scenario

This is an aspect of exchange betting that appeals to a lot of people. The Green Book takes a bit of work, but it is where a punter can earn profit no matter the outcome of an event. This is one of the great things about betting exchanges with their Backing and Laying options and in-play markets.

This is best explained in a simple example.

You have a Horse Race with seven runners. We are backing second-favourite Dancinginthewoods at 6.2 odds with a £100 stake. All that we can lose on that bet is £100. The profit for a win would be £520.

The Famous Betfair Green Book Scenario

Just before the start of the race, Dancinginthewoods gets well supported and the Lay Odds on him tumbled from 8.6 to 4.0. So now if we Lay Dancinginthewoods for £150 at 4.00 odds, the Liability would be £450.00 in total. Now if you put all that together, you are in a position where you won’t lose anything, no matter what the outcome is. You are able to Back and Lay options on the same horse, essentially risk free.

  If Horse Wins If Horse Loses
Back 100 @ 6.2 +520 profit -100 (loss of Back Stake)
Lay 150 @ 4.0 -450 liability loss of Lay bet +150 (from Lay bet)
Total Profit/Loss Up 70 Up 50

This is just a very simple, straightforward example of trading on the Exchange. This principle can be applied to any sport and any market where you can find the right conditions to create this. There are some basic guidelines to follow:

Ways to make money on betting exchanges

When you start doing odds comparisons between an Exchange like Betfair and traditional bookmakers, then you will start noticing stronger odds on the betting exchange. You do have to remember to take any implied commissions into consideration. But calculating that from a stronger price to start with, against a normal bookmaker’s edge, you can find yourself ahead in value.

You have the ability to pick and choose prices as well on the betting exchange, which helps squeeze every last drop of value out of the market. So simply in watching the markets and understanding where you can get the most value, is a way to make money on a betting exchange such as Betfair. Of course, you still have to get winning bets.

Creating yourself the Green Book situation as described above is another way. It is something that is worth taking some time over and fully understanding. You may not always be able to create a situation on all markets, but you will at least by understanding the process, recognise when the opportunity comes along.

Because of the fluid markets on betting exchanges, there is probably more time that is going to need to be spent on the exchange. It’s not quite as straightforward and quick as just picking a price at a regular bookmakers and simply setting and forgetting about it. But the benefits of the betting exchange can be huge.

Looking to learn more? Check out our comprehensive beginner betting guides.

Betting exchanges FAQ:

Do betting exchanges use live streams?

You will be able to find live streams at Betfair and this is a great feature because it then allows you to watch events and study the live in-play markets at the same time.

Why do markets become suspended?

You will see in live betting on the exchange, the suspension of markets. Let’s say you are watching a football game and a team score. Markets like the outright winner, over/under, correct score and a whole host more are going to be affected. These markets will be temporarily suspended until the odds are updated.

Are Cash Out options available?

Yes and this is a wonderful feature on the betting exchange and it allows you to keep on top of your live bets. Let’s say you have backed Aston Villa to win a game, and they are leading by a one goal margin with a half hour to go. You will be offered a Cash Out price to take at that moment. It means you can lock in some profit instead of risking having the bet go to the final whistle and potentially lose. Cash Out value won’t be at lesser odds than your pre-market selection.

What happens if a bet is not matched?

Trying to get a matched bet of Barcelona at 100.00 to beat Celtic in the Champions League is highly unlikely to happen. That’s because it’s a ridiculous price that no-one is going to take on.

There are scenarios when normal bets don’t match. If they don’t then they will be taken off the market and you won’t lose anything. Pay attention to lesser backed markets because these will potentially be harder to get matched bets on. Trying to get a reasonable bet matched on a Volleyball fixture from Argentina isn’t going to be as easy as getting one done on a popular market like football or tennis.

What affects Market Odds?

A lot of the focus on the Betting Exchange is trying to get a higher priced matched. The markets move a lot on the exchange and that is down to several factors. You could be looking at backing a horse at 6.6 odds one moment and the next time you look up at the screen they have shortened to 6.2 odds. It is trying to catch things at the right time.

You can set your own odds, but unrealistic ones are not likely to be matched. If you see a horse at 4.6 best odds, you don’t have to immediately take them. If you are patient then you could go in with a price of 4.7 or 4.8 to try and get a little bit more. You just have to wait for them to be matched.

The more money that gets placed on markets (Back and Lay options) are naturally going to affect prices and how punters match them. When punters start getting wind of things like team selections in a football match, then factors like that can influence the Exchange.

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Betting Exchanges Explained: How Betfair Works
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Betting Exchanges Explained: How Betfair Works
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Learn how Exchange betting works with examples on Betfair. Backing and laying bets explained, along with commission, the green book scenario, and more!
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Best Free Bets
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Article by Lee Jackson

Lee has built a vast working knowledge of different bet types, betting systems, probability and all-important experience. His experience within the betting industry extends to over a decade of researching and writing betting guides. Understanding the statistical and mathematical side of betting is something that fascinates Lee. The study of statistics and implied probability in odds are factors that he finds engaging and important to understanding the inner workings of the practice of betting.