What is a Betting Exchange? How do Betting Exchanges Work?

What is a Betting Exchange?

A betting exchange is different from a traditional sportsbook because instead of wagering against the book or house, you are betting directly against another user. 

For instance, Prophet Exchange is a peer-to-peer sports betting exchange that allows people to get the best prices available on their bets by betting against other people instead of sportsbooks.

How Does a Betting Exchange Work?

Betting exchanges work because with two customers betting against each other and not the house, the vig is much lower, often around -101 instead of -110.

The exchanges take just a small fee, but they can afford to do that because of how simple it is to run. Unlike sportsbooks, betting exchanges don’t need to make sure (through trading) that all lines are up to date, or even that they are making the optimal odds in the first place.

Many large bettors who use betting exchanges like it because they won’t be limited. Legal sportsbooks can and will limit your wager sizes if you have a large winning track record on their site. 

The exchanges make money by taking a commission instead of building vig into the odds. 

Another huge difference between a betting exchange and a sportsbook is that with the exchanges it’s possible to lay bet, which means betting on a choice to lose rather than win.

This may not make much of a difference in popular American team sports where there’s one winner and one loser, but in one-way market bets like props, or say horse racing and golf, lay betting is especially popular because you can bet that an outcome won’t happen.

Say you really do not think Jon Rahm will win The Masters. He’s a +700 favorite to win the event, according to the listed odds on DraftKings. You have a choice to bet on Jon Rahm or any other individual player, but you do not have the odds to choose “anyone but Jon Rahm,” also known as “the field” or simply a “no” for a “will Jon Rahm win The Masters?” wager. 

This also applies to futures in team sports. For example, entering the playoffs the Packers were +380 to win the Super Bowl last season, but there is no option for the Packers NOT to win the Super Bowl.

With betting exchanges, every bet has to have an equal and opposite bet taken by another user. So in order for a “yes” bet on a future to have action, a user has to take the other side and back the field.

Betting Exchanges in the United States:

The Federal Wire Act of 1961 makes things complicated in the United States because it banned the transmission of gambling information across state lines. This makes it hard for the exchanges because they need to be different and separate in each state, so funding enough money for payouts can be a problem. Most need to have customers to fund a lot of the market.

Even though there isn’t currently a big market of betting exchanges for use in the United States right now, they still can be useful to a bettor.

Just visiting sites like Prophet Exchange allows bettors to get an even better idea of the market and sharp value based on what other bettors are willing to buy and sell on the exchange.

For a more detailed explanation, here’s a video breaking it down:

How to Use a Betting Exchange:

To place a bet on a betting exchange, simply look around for lines/open bets for you to accept and the bet will have action. Or, propose your own line and bet and hope someone else wants your action and takes the other side. 

How Have Betting Exchanges Changed Betting?

Betting exchanges have changed betting not only through their own low vig and back/lay concepts but also by forcing sportsbooks to adapt and keep their customers. Features such as live betting, cashing out and mobile betting have gone through the roof thanks to innovative exchanges like Betfair. 

Benefits of Betting Exchanges:

• No Limits
  • Sportsbooks can limit you once you start winning too much and taking their money. With exchanges, they don’t care if you or your opponent wins — it’s the same outcome for them either way. For serious bettors who risk very large amounts, this is a huge deal.
• Two-Way Markets
  • As explained above, on an exchange every bet needs an equal and opposite bet. Betting a horse to win the race requires an opposite bet of that horse NOT to win (any other horse to win) and opens the possibility to bet with the field against an individual outcome.
• Lower Fees
  • Since exchanges take a commission instead of paying out your wins from the house, they are guaranteed to make a profit on any bet placed. Because of this, they are able to charge a much lower house fee (the vig) and the odds are closer to -101 than -110.