What is Betfair Cross-matching?
Betfair introduced cross-matching in 2008 to increase the chances of its customers getting their bet requests matched. One of the reasons for doing this was that Betfair identified the concept of an "unmatched" bet as the biggest barrier to getting new customers. (An unmatched bet request was not something a potential betting exchange customer was going to have experienced at a bookie.)
Cross-matching is part of the Betfair bet matching engine, which matches opposing customer bets. When a bet request cannot be matched by an opposing bet on the same selection, cross-matching will attempt to match the bet request with unmatched liquidity on the remaining selections in the market. Cross-matching incorporates "best execution" meaning that whenever the bet matching algorithm can match a bet request at a better price than requested, it will do so, resulting in the customer making the bet request getting the best possible price.
For example, when Betfair enable cross-matching in a tennis market, a customer can back either player, regardless of liquidity on a particular player, and get the best price. If a customer backs the underdog, the bet matching engine may lay the favourite if doing so would provide a better price. Assume the favourite is available to back at 1.50 and the underdog is available to lay at 3.10. With cross-matching if a customer attempted to lay the underdog at 3.10, it would be matched at 3.00, because laying at 3.00 is the same as backing at 1.50.
A more complex example illustrating cross-matching is provided in Betfair’s API documentation.
Cross-matching is not enabled for all markets. For non cross-matched markets, Betfair will only attempt to match customer bet requests against unmatched bets of the opposing type (backs versus lays) on the same selection in the market.
For the majority of Betfair customers cross-matching has no downside. However, cross-matching does eliminate a proportion of risk free betting opportunities for traders, e.g. those chasing under-rounds across whole markets.
In a fair betting market all odds add up to 100%, which is termed a round book (or an efficient market). If the book percentage is over 100%, the market is over-round and layers make a profit. If the book percentage is under 100%, the market is under-round and backers make a profit. For example, in an under-round market, you can back every selection with the appropriate stake and win whatever the result. If the under-round is 99%, you get £100 back if you spend £99.
Prior to cross-matching, Betfair markets were balanced (i.e. returned to a round book) by traders seeking over-round and under-round markets and snapping up the value bets. When Betfair turn on cross-matching in a market they do this instead, so the market cannot go over-round or under-round.