Since 1961, when legal betting shops opened for the first time in Britain, bookmakers have had a fairly easy ride with plenty of profit opportunities for both small and large betting companies. That was until 2000 when the new concept of a betting exchange was conceived and developed by a company called Betfair.
Betfair came up with the revolutionary idea of person-to-person betting where people can basically place bets anonymously with each other on any number of markets. Whereas traditional bookmakers only offer users the opportunity to back a selection that they think will win, Betfair, and subsequent betting exchanges that have entered the market, offer it's users the opportunity to back and lay bets, so you can profit from finding losing selections if you so wish. You can also choose the price you want. For example, if the current price available for your selection doesn't represent value, you could enter your own price into the system and hope the price moves to this level and your bet gets matched by another user.
There are many advantages to using betting exchanges over conventional bookmakers:
Backers using exchanges can benefit from upto 20% better odds than traditional bookmakers. This is because layers are more prepared to offer higher prices than other competing users in order to get their bet matched. The exchanges make their money by taking a small commission, usually between 2% and 5%, from all profits it's users make from a particular market (and nothing if you lose), but even taking this into consideration you're still getting much higher odds even after deducting any commissions.
There are greater opportunities to make money from in-play sporting events. For example, most bookmakers suspend betting in a football match with about 10 minutes to go, whereas betting exchanges generally allow betting right upto the final whistle.
With betting exchanges, there are vast profits to be made from trading in-running markets. This is essentially where you back at a higher price and lay it all back at a lower price to guarantee a profit. Alternatively laying at a lower price and backing it back at a higher one is equally as profitable. For example, let's say you back Man Utd at 2.2 to beat Liverpool for £100. If they win you will get £220 back with £120 of that being your profit (minus commission). After 80 minutes Man Utd take the lead 1-0, and their price has dropped significantly and is now available to lay at 1.1. You decide not to hold on to the bet in case Liverpool score in the last 10 minutes, and trade out for a guaranteed profit. You could do this by laying this price for £200. This would guarantee yourself a profit of £100 (minus commission) whatever the outcome of the match:
Man Utd win: Profit = (£100 @ 2.2 = £120) - (£200 @ 1.1 = £20) = £100.
Liverpool win/Draw Profit = (-£100) + (£200) = £100.
Betting exchanges offer a far wider choice of markets to bet on than traditional bookmakers. They cover a number of sports that aren't usually available to bet on. These include such diverse sports as handball and trotting, as well as various miscellaneous events such as polical betting and TV talent shows like American Idol.
Finally because betting exchanges make their money, in the form of commissions, from winning punters, winners are always welcomed. This isn't always the case with bookmakers, who are more than happy to take your money when you lose, but if you're successful they soon limit your bets or even ban you completely.
To conclude, it's not surprising that traditional bookmakers have become increasingly concerned with the growth of betting exchanges. They have even tried unsuccessfully to force the government to place restrictions on the users of betting exchanges, and even to shut them down. However they continue to grow and in my opinion will continue to eat into it's more conventional rivals' market share in the future.
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Jim Buccini is a former full-time Betfair trader who has produced a website reviewing Betfair, and detailing proven profit-generating tips and strategies. For more information click on the following link:
Betfair guide, plus tips and strategies
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