How Does Betfair Work? Betting Exchanges Explained in Full

Tablet on a desk with a betting exchange open, next to a laptop and cup of coffee.

Anyone who wants to start a career as a football trader needs to be comfortable with betting exchanges, as using them in the right way is vital to success. Betfair is the best betting exchange that most football traders use on a daily basis, but there are a number of other options, for instance Matchbook, Smarkets and Betdaq.

This article will explain, in simple terms:

  • Exactly what a betting exchange is.
  • How betting exchanges work.
  • What commissions are charged at online betting exchanges.
  • How Betfair's Premium Charge works.
  • ​Which exchange betting sites you should use for football trading.

Screenshots will also be used to show you exactly how betting exchanges operate - so let's begin!

What is a betting exchange?

A betting exchange is where football traders can place bets against other sports fans, rather than against the bookmaker, as in traditional forms of betting.

In its most simplest form, a betting exchange allows a user to bet on or against something happening - usually in the context of a sports event.

One of the main differences of an online betting exchange when compared to a traditional bookmaker is the chance to trade in real-time.

As an exchange, if you place a bet on a football team before the start of a match, by using a sports exchange such as Betfair, you will be able to change your position during the game.

A key benefit of online betting exchanges is that they typically offer better odds than a traditional bookmaker, which is vital for a football trader who needs to find the best possible odds for a bet.

In fact, research has shown that betting exchanges can offer up to 20% more value overall.

This can make a massive difference if you are placing a lot of bets.

Betting exchanges have had a revolutionary impact on the sports betting industry and they now lead the way on odds, with bookmakers following in their footsteps.

This is good news for customers, who have a wider range of choice than ever before when placing their bets.

Some traders use both bookmakers and betting exchanges to make their money, but it is perfectly possible to avoid bookmakers altogether and concentrate solely on sports exchanges.

What does it mean to lay a bet?

Anyone who is hoping to make their living from football trading needs to be 100% sure they understand the difference between backing and laying a bet, as making a mistake can be costly.

Laying a bet is how a number of traders make most of their money.

Put simply, to lay a bet is to bet against an event happening, whereas to back a bet is to bet on the event happening.

For instance, if you think Manchester United are going to win a football match, you would place a back bet on that team.

But if you think they are not going to win - so they will either lose the game or draw it - you can place a lay bet against Manchester United.

By placing a lay bet, a football trader is effectively taking on the role of the bookmaker by offering the odds that can then be taken by another user.

If you are right and the team you have bet against loses or draws, then your lay bet wins.

If the team you chose to lay actually wins the match, your bet loses and you have to make a payout.

In the simplest terms, when you place a back bet, you are betting on something to happen.

A lay bet is the exact opposite of this - you are instead betting on something not to happen.

Let's take a look at an example of how a lay bet works in practice.

We'll be using England's international friendly match against Netherlands for this example.

England v Netherlands match odds market on Betfair

As you can see by the odds offered on Betfair, England are the favourites to win this match.

With back odds of 1.79 on this sports betting exchange, this means that if you thought England were going to win the match, you could win £7.90 for every £10 you choose to stake.

However, when you are laying a bet you are betting against a team winning a fixture.

On Betfair, the back odds are listed in blue, while the lay odds are coloured in a rather fetching shade of pink.

England v Netherlands lay bet in the Betfair match odds market

The lay odds for England against Netherlands in this match are currently set at 1.80.

What this means is that for every £10 you choose to stake, you could be in line to lose £8 if England win the game.

If England did not beat Netherlands, your profit would be £10.

You can back and lay at the prices shown on your chosen sports exchange, or you can also decide to set your own odds.

If you decided that 1.8 was not the right price to lay at, you could instead opt to lay England at 1.7.

However, as other users of the sports exchange would be able to get a better price, there would be a good chance your bet would be unmatched - although it could be matched during the game.

The figure shown below the odds is how much money there is in the market at this time.

So, in the example given above, another £2,800 could be laid on England at 1.8 before the price would change, while there is £514 available to bet on England to win at the price of 1.79.

Big football matches will typically have a lot of money in the match odds market, especially as kick off time approaches.

However, some of the other markets that are offered on the main sports exchanges - for instance the correct score market - may not have a lot of money in them in smaller leagues, which affects the odds on offer.

Backing and laying for profit is how football traders make their money, so make sure you fully understand what you are going before you start placing your bets on your chosen exchange.

How do betting exchanges work?

Betting exchanges are, in effect, an online marketplace where sports fans can bet against each other on global fixtures.

The sports exchange is simply acting as the middleman, allowing users to both set a price for their bet, and take a price that others are offering up for an event to take place.

With millions of customers signed up to these betting exchanges, the odds available are often a lot better than those available on the same matches with a traditional bookmaker.

Betting exchanges make their money by charging traders a rate of commission on their winning bets - more details on which can be found below - but you will only pay commission to the sports exchange if you have won your bet.

Commission does not typically apply to a losing wager.

Although the fact there is no bookmaker setting the odds means there are better prices available on the top betting exchanges, the commission charged on winning bets should also be kept in mind by anyone considering trying to make it as a professional football trader.

Even though the peer-to-peer exchange model used on sites such as Betfair have been shown in various studies to have resulted in virtually perfectly efficient markets, this does not mean that you only have to win 50% of your wagers to be breaking even.

Instead, a trader needs to be aiming to win 52% of their wagers in order to ensure they are turning even a small profit, depending on the level of commission they are being charged.

In-play match odds markets on Betfair

This might not sound easy, but traders can use sports exchanges to guarantee they are going to make a profit on certain bets.

The way that this works on the exchanges is the same way as what is known as an 'arbitrage' in either spread betting or share trading.

There are two ways that this works in the world of sports trading online.

The first of these is when your selection drifts in price after you have decided to lay a bet. A prime example would be the ever popular lay the draw trading strategy.

Secondly, it is also possible to lock in a certain amount of profit if you back a selection and then later on its price gets shorter.

Because of the changes in price, you would then be able to cover all the possible outcomes and guarantee that whatever happens, you are going to come out on top with some level of profit.

However, remember that you also need to factor in the commission level you are going to have to pay out of your net winnings on a particular market before you decide to lock in a profit.

Betfair exchange commission

Traders who use Betfair as their main sports exchange will have to pay a commission - but only on betting markets they win on.

Anyone who makes a net loss on a Betfair market does not have to pay commission.

Betfair calculates its commission by multiplying the trader's net winnings by the Market Base Rate.

From there, Betfair applies a discount depending on how much a trader uses the site for bets.

New customers will typically be charged at a 5% commission rate, but the most experienced traders using the sports exchange have been able to get their Betfair commission rate down to around the 2% mark.

This can have a massive impact on the money which can be made on the site.

List of Betfair Points

The size of the discount traders get from their commission rate - which Betfair sometimes describes as the Discount Rate, depends on how many Betfair Points a customer has been able to accrue on an account.

The more people use Betfair to place bets on the exchange, the more Betfair Points they will receive, in turn improving their Discount Rate and reducing the amount of commission they have to pay on their winning bets.

This is how Betfair Points are calculated:

  • Customers earn one point for every 10 pence of commission that is paid out of their account from any net winnings on the site.
  • The same rate of one point for every 10 pence is also in effect for implied commission - which is in the event of a trader having a net loss.

Betfair Points are added to an account equally, no matter whether your bets have won or lost on the site.

If you want to find a complete history of the Betfair Points you have been able to collect by trading on this exchange, you can check out your record by looking up the 'Betfair Points Statement' in the 'My Account' section of the site.

How to find Betfair Points in the My Account section.

Betfair Premium Charge explained

Everyone who uses Betfair as their best betting exchange will be aware of the Betfair Premium Charge, which the site claims only affects a very small proportion of members.

According to Betfair, only around 0.5% of people with an account are affected by the Premium Charge, but considering millions of people are members of Betfair this could still work out at a very significant number.

"The charge simply applies on accounts which make a persistent profit and meet a certain criteria," says Betfair, but the Premium Charge has been a very controversial introduction.

Traders will only be considered as potential payers of the Betfair Premium Charge if their account on the site matches the following conditions.

  • Firstly, that the account is in profit over the course of its lifetime.
  • Secondly, that the total charges that have been generated by an account are less than 20% of the gross profits made by a trader.
  • And thirdly, that the account has been used to bet on 250 separate markets on Betfair.

If your account meets the above three conditions, there is a chance you will be deemed eligible to pay the Betfair Premium Charge.

However, Betfair stresses that no charges are taken out of an account before the holder has been informed of the change in the status of their account.

Betfair Exchange Points

Once an account has been deemed necessary to have to pay the Betfair Premium Charge, at the end of an account's profitable week in less than 20% of a trader's profit has been paid in "total charges", the Premium Charge will be withdrawn automatically from the account to bring it up to the 20% of profit benchmark.

Some users have complained that the Betfair Premium Charge is too complicated to understand and it does seem to be a bit of a minefield that the average trader may struggle to get their heads around, which is partly why its introduction has been met with such a negative reaction.

For some, the Betfair Premium Charge is a sign of greed for a company that is virtually certain to make profits due to its status as the leading betting exchange in the UK.

Others believe Betfair provides such a high quality service as a sports exchange that it is only fair those with extremely profitable accounts pay more to help to keep the site going.

How to make money on betting exchanges

Although for those who are brand new to trading may feel it is a long way away, it is eminently possible to make a lot of money on betting exchanges once you develop a winning strategy that works for you personally.

A typical strategy used by sports traders on sites such as Betfair and Matchbook is to back a selection at a big price then lay the same bet once the price comes down.

Of course, there is no guarantee that the price is going to move in your favour, but that is where your own skill and expertise comes into play.

A lot of bookmakers now offer a cash out option, which works in essentially the same way as if you had backed and then laid a better when the price had changed.

Betfair also has this option to make backing and laying very straightforward, even for those who are brand new to using the betting exchanges to make money.

As an example of how to lock in a guaranteed profit, let's say you placed a bet of £10 on a team to win the league.

You know that if the team goes on to win the league, you will get £100 profit from your bet.

However, if the price later comes down and you can lay the same bet at 5/1 - now betting against that team to win the league - you can lock in a profit.

Correct score football trading market on Betfair

A lot of traders also make big cash on betting exchanges by using the inplay markets, with dozens of different options available to bet on sports exchanges for any live football match in this day and age.

As an example, you could place a pre-match back bet on a 0-0 draw between two sides, which is often quite a safe play unless there is likely to be an early goal in the game.

The price for a 0-0 draw will come down the longer the teams take to open the scoring in the match, giving you the chance to then lay 0-0 and guarantee yourself a big profit.

Betfair football trading market.

Others use a trading technique that is known as scalping, which involves trading at miniscule odds movements to guarantee a small level of profit with each bet, placing a massive number of wagers to inch up the money you make.

As a real world example of how this effectively works on the exchanges, imagine that you paid £100 for a ticket to an event, then sold it for £101 to someone else moments later, making yourself a £1 profit.

Scalping requires a trader to know in which direction a price is going to move.

Again, it must be stressed that this is never a guarantee, but once you have some level of experience on sports exchanges you will start to get a feel for which prices are rising and which prices are falling.

However, you should always remember that while gambling profits are not taxable in the UK, so that money is all yours tax-free, profits from other trading activity can be taxable in some cases.

List of all betting exchanges

There are four main UK betting exchanges that you will want to sign up to before starting out on your trading journey, if only for the bonuses which will come in handy as you learn.

Make sure you are comfortable with how each of them works before placing bets.

Here is the full list of betting exchanges:​

Betfair

Betfair Betting Exchange

Betfair is the biggest betting exchange in the world and, as such, it is hugely popular among traders.

Founded in 2000 by Edward Wray and Andrew Black, today Betfair has four million customers, from all around the world, while the company boasts a turnover of around £50 million a week.

In early 2016, Betfair - which employed more than a thousand people - underwent a merger with the traditional bookmaker Paddy Power to form a new company named Paddy Power Betfair.

Betfair also offers a sportsbook as well as a sports exchange, so it is easier than ever before to check out the different odds that are on offer from both a bookmaker and from other traders.

The standard commission rate paid on winnings at Betfair is set at 5% but some account holders are able to reduce this figure to just 2% by placing a greater number of bets on the site.

Matchbook

Matchbook Betting Exchange

The second of the main UK betting exchanges is Matchbook, which used to charge a 1% commission, but this was increased to 1.15% in 2016.

Matchbook aims to offer traders using the sports exchange "the ultimate online gaming experience".

Betdaq

Betdaq Betting Exchange

Betdaq, which was founded in the same year as Betfair, has around 7% of the online betting exchanges market.

Irish businessman Dermot Desmond founded the company, which was sold to Ladbrokes in 2013.

Betdaq, which has a standard commission rate of 5%, claims that it handles more than £75 million worth of bets in a typical week.

Smarkets

Smarkets Betting Exchange

The newest of the main sports betting exchanges is Smarkets, which was set up in 2008 and recently announced it has traded over £1 billion in bets.

Billing itself as the more "advanced trading platform", Smarkets is preferred by some betting traders due to the fact it has a low commission rate of just 2%.

Along with being a top sports exchange, Smarkets also allows users to back and lay bets on current affairs, politics and popular culture.

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