The traditional bookmaker offers a product that nobody would typically buy. Their offering is ‘Send us £1 and we’ll return £0.95’. This is based on the general margin / edge of 5% across sportsbooks and casino games although it can be both significantly better and worse than this in certain situations.

Whether the customer places a bet, plays a slot machine or spins the roulette wheel the bookmaker (house) has an edge. Typically of a few percent as stated earlier. So every person doing this is trading their money for slightly less money. Of course this is long term – it’s possible to win signficiant amounts in a single session and equally lose vast sums. Never risk more than you can afford to lose – Gamble Aware is a vital resource.

Focus: Sports Betting

Let’s illustrate this with an example from the world of tennis (it seems appropriate as that’s kinda our thing). There is a match between ‘Player A’ and ‘Player B’. The bookmakers traders have calculated that each player has the exact same chance of winning (i.e 50%).

So what should the odds be for both players to win? 1/1 (2.00). However, have you ever seen a bookmaker offering evens or above on both sides of the line? Probably not. If so, their traders should be fired, as they would not make a profit from that market long term. Instead bookmakers take the actual odds (based on implied probability) and then add their margin which varies from bookmaker to bookmaker. Marathonbet and Pinnacle will only reduce it by 2-3% on average whereas lower quality bookmakers will often apply a margin in excess of 5%. Larger events typically have a higher payout as bookmakers need to be more competitive.

What odds will the punter actually get? In the scenario above it would most likely be 1.80 – 1.95 or close that range. So although the match is essentially a coin flip – they are paying out slightly less and lets how they make a profit. It may not seem much but imagine it amplified over turnover of millions of even billions when considering the worldwide sports betting market.

Where do Exchanges come in?

The concept of an exchange is to match customers. The market liqusity is provided by others with a different opinion. So in the example above one person may think Player A will win and another Player B. The exchange brings them together. The person who predicts it correctly walks away with the money. No bookmaker margins – fair odds that actually reflect real probability. So what’s the issue? In a word, the dreaded – commission.

Range of Tennis Markets on Exchange. Source: Smarkets
Range of Tennis Markets on Exchange. Source: Smarkets

Exchanges offer the same coverage as bookmakers in terms of the matches and events however some bookmakers still have the edge in terms of speciality markets. Often exchanges don’t offer the more complex handicap markers or ‘total aces’ (for example) on tennis due to the projected lack of liquidity.

Why use Betting Exchanges?

Sports betting is one of the few forms of gambling where it’s possible to gain an edge. Roulette has a fixed house edge and there is nothing the player can do to alter this. However with sports betting an educated bettor can disagree with the bookmakers traders regarding an outcomes projected probability. This individual may still struggle to profit consistently due to excessive bookmaker margins but on an exchange he or she doesn’t have to worry about this. Just the commission on profit of 2-5% which is relatively easy to overcome. There is also a ‘Premium Charge’ for those who place large bets and meet certain profit thresholds.

Crucially though; an exchange will not close or limit your account for profiting long term, it will not charge a margin through its odds only commission and it will increase your profit by 10-15% on average. For an individual who’s serious about sports betting this a no brainer.

Remember to track all bets to clearly monitor profit/loss, liability, ROI and other essential statistics with a reliable platform such as Betting Metrics.

Liquidity: Significant Issue?

Generally – the short answer is no. Large tennis events have more than enough money going through the market to satisfy the needs of virtually all bettors. Those using extremely large stakes may struggle. Betfair is the largest exchange with the highest average market liquidity.