How Betting Exchanges Changed Betting
Betting exchanges changed betting by allowing punters to:
- Lay
- Hedge
- Trade
They also introduced punters to:
- In-Play Betting
- Place Only Betting
Laying
Because Betting Exchanges let you bet that an outcome will not occur, bookmakers initially cried foul, claiming that it would lead to increased corruption in sport. (Ironically, the BETDAQ exchange has now been purchased by Ladbrokes to allow them to provide a betting exchange as part of their offering.)
The advantage of laying a selection on the exchanges is that you can replace several bets with one. For example, if you wanted to oppose the favourite prior to the exchanges, you would have had to place several back bets on other runners, paying the bookmaker’s margin on each of these bets. This is an extremely poor value way to replicate what you can do on an exchange with a single bet.
Hedging
Hedging is where you cover a bet with a second bet to ensure that whatever happens in the event you are betting on, you cannot lose.
The prerequisite for hedging is that the odds have shortened on your original back bet or lengthened on your original lay bet. For example, assume you have backed a selection at a bookies at 50-1, who goes onto exceed expectations since you placed your bet and stands a good chance of winning. The selection is now available to lay on a betting exchange at 2.5. You now have a choice, do you:
- Place a lay bet for the same amount as you originally staked in your back bet, ensuring that whatever happens you will not lose any money?
- Lay a far larger amount, ensuring that you will receive more more if your selection loses, but reducing your payout if it wins?
- Decide your original instincts were correct and place a back bet at 2.5 increasing your payout when your selection wins?
If you have a track record of backing more losers than winners, you may decide to use hedging as insurance policy. However to get back to the original point of the article, before the advent of exchanges, hedging in this manner wasn’t possible. Hedging by backing multiple possible winners on a bookmaker means that you not only have to absorb the profit margin multiple times but you also run the risk of an outsider that you don’t back ending up winning.
Trading
Betting Exchanges enable punters to trade horses, dogs, football teams and so on just like a city worker would trade stocks and commodities. Betting exchanges allow punters to do this because they allow them to back and lay a selection.
When trading, you bet on the direction of the odds rather than the result of the sporting event, which is irrelevant to the trader. Form for the trader is not based on an analysis of the event participant’s past performance. Instead, it is based on how betting markets typically react to situations in an event and getting a feel for market sentiment.
Here’s a simple trading example, which can be summarised as "back high, lay low". At the start of the season, a punter backs Liverpool to win the Premiership at odds of 15.0 with a stake of £100. As the season progresses, Liverpool’s form is such that the odds shorten to 4.0. The punter now lays Liverpool at these odds to win £150, thereby guaranteeing a profit regardless of the outcome of the Premiership. If Liverpool win the league, the payout is £900 (profit from back bet minus liability from lay bet: £1500 – £600). If Liverpool fail to win the league, the payout is £50 (profit from lay bet minus back bet stake, £150 – £100). The former, more profitable, outcome is more favourable, but the punter will not lose money either way.
In-Play Betting
In-play betting, also known as in-running betting, allows you to bet whilst the sporting event is in progress. This means you don’t have to simply accept a loss if things turn against your selection. You can attempt to cover your position / reduce a loss by betting in-play. For example, you back a runner in a middle distance race before the race starts. You can see that the runner has started off to quickly and will run out of steam before the finish. Before the advent of in-play betting, you would have had to wait helplessly for events to unfold, before accepting the inevitable loss. With in-play betting, you can bet offer / ask for a price at any point in the event (assuming the market hasn’t been suspended), giving you the opportunity to at least reduce your losses if the bet goes against you.
Betting exchanges didn’t introduce in-play betting, it was the bookmaker, Stan James, who led the way. They do give customers more choices when betting in this way i.e. they can trade their way out of a position if things are going well or cut their losses if things are going badly.
Place Only Betting
Place markets let you back or lay a selection to be placed in a particular event. For example, a horse to finish 1st, 2nd, or 3rd in a horse race with 8 or more runners. Place markets are available for most events with a large number of entrants. The numbers of places available in a market varies, and so it is necessary to check the market rules to see how many places there are.
The advantage of the place only betting is you are not forced into making two bets like an each way bet at a bookmaker requires.
