How Betfair Works (The Exchange)
- Frank is keen to place a bet on Fremantle to win a match, Timmy believes they will lose the game.
They each log into their Betfair accounts.
⁃ Frank wants to place a $10 bet and believes at odds of 3.0 (2/1) seem reasonable. He wants to win $20 for this bet if Fremantle win.
⁃ Timmy logs in and as he believes Fremantle will lose he agrees that these odds are accurate so he places a $10 lay bet at these odd.
⁃ If Fremantle win Frank will get his $20 and his original $10 stake back. Timmy will lose his liability amount of $20
⁃ If Fremantle do not win (lose or draw) Frank will lose his $10 and Timmy will win $10 and of course not lose any of the liability he risked.
⁃ Essentially in this example the person placing the lay bet and risking liability and acting as the bookmaker.
What is a Lay bet?
The bookmakers are your standard betting companies that you go on to place a bet for a selection to win. This is called a back bet as you are backing a selection to win. If this selection wins then the bookmaker will pay you the amount you have won.
Betting exchanges are different as they also let you place bets against a certain outcome happening. This is of course the lay bet. There are very different. For example in a soccer match there are 3 outcomes
(Team A Win – Draw – Team B Win)
NB. You back with the bookmaker (eg. Ladbrokes, Sportsbet) and lay against the outcome with the exchange. (Betfair, Smarkets etc.)
This is important because to place our bets with no risk we obviously need to cover all outcomes. So we can back team A to win with the bookmaker and then on the exchange bet that this outcome will not happen. This covers the possibility of both the draw and a team B win.
There a tons of betting exchanges out there but I use Betfair because it's the most mainstream and usually has the most liquidity. I would recommend starting out with these for simplicity sake if you are unfamiliar with the world of betting exchanges, it also has the most amount of liquidity. I will be using it in all examples where I mention the exchange.
We need the back and lay to have odds as close as possible, usually the odds on the bookmaker are slightly worse so you make a small qualifier loss each time. This is to be expected and we aim to keep this loss under 10% at all times (Qualifing loss) . Then when we extract the cash from the bonus we will have even more net profit. (explained later)
As Betting Exchanges are different to bookmakers they do not participate in the bet, you are simply betting against other people just like you from all over the world. They are the middlemen, for this they take a commission on every bet you win.
If you lose with the exchange and your bet wins with the bookmaker instead then there is no commission.*
The commission for Betfair is 5% and you can enter it into the calculator so you do not have to worry about it, just be aware of it if you manually try calculate why your exchange winnings numbers don’t exactly add up because have 5% less winnings then you expected.