By:Jens
2009-10-14

A betting exchange is based around a piece of software which is, in essence, very similar to the software used to calculate the stocks and share prices. Over the years the software has been refined to incorporate almost every conceivable bet and outcome and as such offers the punter a degree of flexibility and freedom in their betting that had not been available previously.

When a new customer signs in with a betting exchange they deposit an initial sum of money into their account which is their money to bet with. Unlike a traditional bookmaker where a punter makes a bet with the bookmaker, the betting exchange works by connecting a gambler with another gambler who has opposing views of the same event. A bet is only accepted if it is “matched” by another customer having that opposing view and willing to make that bet.

Once a bet is made, the software searches through the markets for a customer willing to accept the bet you have made. If a match is found, then the bet is made anonymously. The punter is not betting against the bookmaker, but against another punter who simply believes that the outcome of the sporting event will be different.

In addition to backing a horse or team to win, customers can also lay a horse or team to lose and accept bets on this from other punters. If the horse or team wins then they have to pay the victorious punters what they are owed from their account, however if the horse or team does not win, then the punter who laid the bet will keep the stakes laid on it, in the same way that a bookmaker keeps the stakes of all losing bets.

Betting exchanges are free markets and punters are allowed to select the odds and prices which allows great scope to offer far better value in terms of prices as you would find at a bookmakers. The odds are generally shown as decimals, although options are available on site to allow punters to view the odds in fractions if preferred.

Companies who run betting exchanges, such as Betfair, make their money from taking a commission of between 2% and 5% on all winning bets.

To summarise, a betting exchange works by linking gamblers who are willing to bet their money on possible outcomes of the same sporting event. The software used not only helps find the best odds available, but links gamblers together to create the market and match bets together. It then automates the payments between gamblers to ensure that all payments are made on time. The exchanges are flexible, fun and for some, highly profitable.