What is a Betting Exchange?
A betting exchange it is a place where anyone can ‘back’ or ‘lay’ a selection in virtually any sports betting market! This means it is possible for ordinary gamblers to bet for a particular selection to either win or to lose!
As mentioned above, when using a betting exchange we can either ‘back’ or ‘lay’ any selection. Backing a selection will already be fairly familiar to most people, it is simply having a bet on something to win, for example betting on a particular horse to win a race!
Laying, on the other hand, is probably a new concept to many people, especially those who have only ever bet with traditional bookies in the past. Laying a selection is simply betting that your selection won’t win, for example, if we lay a horse and it finishes 2nd then our lay bet will win!
Backing = A traditional bet on a selection to win
Laying = Betting for the selection to lose (or simply not win i.e. a draw)
Betting Exchange Liability
Another very important concept to understand when starting to use exchange is that of liability, in other words, how much you stand to lose should your bet not win.
With back bets the liability is really easy to understand, if you back a horse for £10 and it doesn't win then you simply lose the £10, simple!
Laying, on the other hand, is a little more complicated and as such you need to be very careful when starting to lay for the first time. If you lay a football team for £10 and they go on to win you could be liable to lose much more than the £10! For example, lets have a look at lay bet example below:
In the example above we see a lay bet ready for Watford in the bet slip, the box labelled “backers Stake” shows we are betting £10 against Watford winning. The reason it says “backers stake” is because by laying the team we are essentially taking money from somebody else who wants to bet on the selection to win.
At the end of this ‘exchange’ with the backer only one of you can win, either the backer will lose his £10 to you or you will, in effect, play the role of the bookie and pay out on the bet. In the example above this would mean potentially paying out £210 if Watford go on to win!
NB – Since £10 of this £210 is the backers stake we would lose only £200 of the £210!
So, whilst it might look unlikely that that Watford will win with such odds be prepared for a big loss if they do!
What is Betfair Trading
In the section above we looked at the basics of how an exchange works and how we can bet for or against any selection winning. We also looked at an example of how laying Watford at odds of 21 would leave us with a liability of £200 should Watford go on to win.
This is great so far but you might be thinking who sets these odds? The answer to this question is both no one and everyone, let me explain.
How are Exchange Prices Determined
Basically, if I wanted to back Watford on Betfair Exchange I could potentially ask for any odds that I like, this could be any value up to a maximum of 1000 (or 999/1 in old money).
NB – All betting exchanges use decimal odds, if you are unsure on how these work please read my guide by clicking here
Whilst theoretically asking for odds of 1000 on Watford would be perfectly fine to do, I might struggle to find anyone willing to lay them off at that price, in other words it is unlikely anyone willing to lay will take that much risk. As such, my back bet at odds of 1000 probably wouldn't get ‘matched’.
For a bet to be matched on the exchange both the person (or persons) backing the selection must agree the same price as those willing to lay the same selection. This means whilst I can ask for any price I like if I make it a realistic price I am much more likely to have the bet matched by a layer.
If we look at a typical exchange market we will see an example of how this ‘market’ looks where backers and layers meet.
As can be see above, all of the backers orders are put in a vertical queue, the ones willing to take lower odds furthest to the right meaning they will get their bets matched first of course.
So, in the example above we can see the best ‘offer’ from someone willing to back Watford is 24, the second best offer being 25. The same is true in reverse for those wishing to lay Watford, those offering the best lay odds (to any potential backers) will show furthest to the right and will get matched first:
Of course, if you simply wanted your bet to be matched straight away as a backer you could just accept the best current price from those wishing to lay and visa versa if looking to lay. Looking at the market above this would mean backing Watford at 23 and laying at 24!
What Makes Trading Possible?
Now we get to the interesting part, trading becomes possible thanks to the fact that exchange prices rarely remain stable throughout any given day. Some prices might not move much and other prices, such as those on horse racing can move a lot in the space of just a few seconds, especially when close to the race start time!
The act of trading simply involves making a wager at one price and then reversing the wager at a more advantageous price. For example, lets imagine we had backed Watford in our earlier examples for £10 at odds of 21, should they go on to win we would get a return of £210:
Next, lets assume the odds for Watford drop to 12 just before the game begins, we can now lay Watford for £17.5 and in doing so guarantee ourselves a profit of £7.5, this is regardless of weather Watford win or lose. This works due to use winning more from the initial back bet than would be lost on the lay bet, this is of course thanks to the odds moving!
In the above situation we would, of course lose one of the bets, however, in either case the winnings from the second (or closing) bet would always cover any loses from said bet (and then some). Below is an illustration of the above where we back and lay Watford, for the sake of the example lets assume Watford won the game:
£10 x 21 = £210
£17.5 x (12 – 1) = -£192.5
So, in this example we would win our back bet, making us a profit of £200 and lose our lay bet losing £192.5. a difference of £7.5 (which is our profit)!
If Watford would have lost we would have still made £7.5 profit, here's how:
This lost, so -£10
This won, so we keep the £17.5 = +£17.5
In this example where Watford lost we would lose our back bet of £10 but win the lay bet of £17.5, again leaving us with a profit of £7.5!
So, in essence, this moment of prices is what makes trading possible and is in many ways a similar process as that of trading stocks and shares! In fact any kind of trading be it shares, FX, or even Betfair trading all work on very similar principals.
Supply and Demand
Of course, there is always a reason why the odds for a particular selection might move, this reason is of course supply and demand!
Basically, the current odds for any selection are set at the lowest point for those willing to lay and the highest point for those willing to back, this meeting point determines the current odds!
When you think about it this is very similar for other types of trading, take stocks and shares trading for example. If a company was losing loads of money and racking up a mountain of debt then many investors would not be willing to invest, those willing to take a chance would of course only do so at a significantly lower share price.
On the other hand if a company was making tons of money and paying out massive dividends to shareholders then the price of those shares would rocket! Everyone would want a part of that company!
Taking it back to our football example, lets say the team we had just laid announced their top player was injured and their manager had just been sacked hours before the game. Of course this would not guarantee the team would not win but it would, in the minds of other exchange users at least make them less appealing. As such those still willing to take a less appealing team would demand higher odds and in turn push the odds higher!
Those willing to lay would also play their part and recognise they can afford to offer higher odds given the troubles the team are facing. Again this is not guarantee the team will win or lose but simply the perception of other exchange users!
In the sections above looked at a basic example of how odds might change and the supply and demand which might cause such change. Should you open a trade (i.e. place an initial back or lay bet) you will at some point need to place a closing bet as well, this closing bet will then (hopefully) lock in any profit meaning the trade is then complete.
This process of locking in a profit regardless of the outcome of the event is refereed to as ‘greening up’ and there are a number of ways to achieve this. Some common methods include:
The Cash Out Button
This is a relatively new addition to Betfair, it is simply a button which will automatically work out the required closing trades needed to close out your trade.
When you press this cash out button Betfair will do all of the necessary calculations meaning you will win the same amount of money on the current market regardless of the eventual outcome. If this figure is in green then you are guaranteed a profit once you press this button!
If the figure is in red it means you will take a loss when using the button, however, after cashing out you loss will not get any worse!
Using a Matched Betting Calculator
Another way to work out your closing bet is to use a matched betting calculator, simply enter the back and lay odds and the calculator will tell you how much to lay at the current lay odds to make a guaranteed profit.
Of course, this is not a perfect method as it only really works when you place a back bet first and is limited to working out only one bet at a time.
NB – The Betfair ‘Cash Out’ button will work out the values for all bets on any given market!
Exchange Trading Software
As your exchange trading gets more serious you will have to start considering specialist exchange trading software. I will cover such software in more detail later on but this is essentially software used to automatically calculate and place closing bets in a single click. By far the easiest way to open and close trades!
The Free Bet Model
This is a method which is not discussed much but can actually be very profitable when done right. This method involves simply backing (or laying) just enough money to cover your outlay, in other words if the bet loses you will break even but if your initial bet wins you will get a much bigger return (hence like having a ‘free bet’).
Lets say we back Watford with £10 at odds of 21 and then, after a couple of hours find they have shortened to only 15! In such circumstances we can turn our position into a free bet very easily by laying the same selection to the same amount as our back bet! For example:
£10 x 21 = £210
£10 x (15 – 1) = -£140
Using these figures above means if Watford win we will make a £200 profit on our back bet and lose only £140 from the lay bet, a profit of £60. If Watford don’t win then we lose £10 on our back bet and win £10 back from our lay bet, in other words we have had a risk free bet!
So far I have not mentioned exchange commission nor worked it into any of my calculations, it is however an important part of trading on exchanges! Most exchanges now operate at around 2%, this includes the ‘big 4’ of Betfair, Smarkets, Betdaq and MatchBook!
Basically, these ‘big 4’ exchanges are very similar when it comes to charging commission, if you make a loss on any individual market then you will pay no commission. If you make a profit on any market you will pay 2% of this profit in commissions (assuming you are using any of the aforementioned ‘big 4’ exchanges).
Betfair Trading Stratergies
At this point you should know what an exchange is, how back and lay bets work, how prices (odds) might change over time and how a profit can be made from all of the above!
Naturally, this begs the question of how exactly do you make money from all of this, the answer is to start developing trading strategies!
Below I am going to mention some common trading strategies, however, it is important to note there is no right or wrong way of developing a strategy. As with anything in life to be successful with Betfair trading will involve refining strategies of your own until they start to deliver the required results!
There are no short cuts here!
Scalping is one of the easiest methods to understand and for many the first step into Betfair trading. Simply put it is about taking a relatively small profit over and over again, as many times as is possible!
More suited to fast moving markets such as horse racing the act of scalping involves opening an initial trade and then immediately entering the closing trade 1 or two ticks in the opposite direction
NB - A tick is simply a movement in the odds at the lowest increment possible. For example if the odds for a selection move from 1.81 to1.82 this would be 1 tick!
This particular style of trading is also more suited to use with exchange trading software which will do the necessary staking calculations for you. This is especially important given that speed is of the absolute essence when scalping!
Swing trading is where exchange traders place an opening trade and then, in contrast to scalping, await a much bigger move in the market before closing their position. This strategy therefore means much bigger returns from any individual trade however, in almost every case will also mean less opportunities to trade.
This is due to the time taken for such a big swing to appear in the odds and means often only one trade can be made per market before the event gets underway.
Another, slightly less popular strategy is that of market making, this involves placing two opposing bets simultaneously in the market. Of course, each bet is slightly more favourable than the market prices by at least 1 tick or more, this means when each bet is matched we will, in effect, be able to ‘green up’ for a guaranteed profit!
Betfair Trading Software
During your journey into the world of Betfair trading you will inevitably come across specialist Betfair trading software. This is software which connects directly to the Betfair exchange and allows the placing of bets without the need for the Betfair website.
The main advantages to such software are usually the enhanced speed at which bets can be placed as well as the software doing all necessary ‘greening up’ calculations automatically as they are needed. Together these calculations plus additional speed means more opportunities can be seized by the Betfair trader in the same amount of time.
There are several big names when it comes to Betfair trading software with BetAngel being one of the biggest and most well known. As you will see from this picture of BetAngel in use (below) the special ladder interface makes visualising the entire market easy as well as offering the ability to place bets with a single click!
Of course, it is perfectly possible to trade on Betfair without specialist software although it is without doubt more time consuming both to place bets and calculate the necessary stake sizes manually.
Due to the delay in using the Betfair website versus using exchange trading software (which is typically fed in real time) specialist software might also open up many more time sensitive opportunities not available to those only using the website.
Trading software is particularly important if you wish to try scalping given how important it is to have as close to real time exchange data as is possible when snatching small price fluctuations!
Where to Find Betfair Trading Software
If you are taking your Betfair trading more seriously and wish to learn more about the different software products available there is the Betfair app store to consider!
With the introduction of the App Directory, Betfair have pulled together information on all of the biggest and best known Betfair software providers into a single place. This makes it easy for new traders to compare the different pieces of software and see for themselves what works best.
Remember these is no ‘perfect’ piece of trading software and if you go down this route I would advise testing at lease 2 or 3 tools to see what fits your strategy best!
Free Betfair Trading Software
If you head over to the Betfair App directory you will see that some of the applications are indeed free to use! Whilst this is a great way to test out an application you might also find many of the free applications limited so be sure to test out a few and focus on what meets your needs rather than trying to save a few pennies here and there!
The best Sports for Betfair Trading
Due to the nature of certain sports, trading will be slightly different depending upon which sport you ultimately choose to trade. For example, Horse racing markets will act seemingly crazily during the last few minutes before the race whereas football markets will barely move at all until the game actually starts!
Horse Racing Trading
Horse racing is, and has been for a long time one of the most popular sports to trade on Betfair. Some of the reasons for this popularity are the volatility of the horse racing markets which can see very big price changes in a short period of time, plus the fact there are usually multiple horse racing meetings each and every day of the year!
This volatility, which leads to frequent movements in the odds is key to the popularity of horse trading presenting many trading opportunities in the course of any given race. This volatility also can have its negatives and anyone unable to exit a trade quickly could find themselves going from a winning to a losing trade in seconds!
As such, horse racing trading tends to be quite a difficult discipline and will almost certainly require the use of exchange trading software to become proficient in!
Football trading is becoming increasingly popular in recent years with many more people trading football games in some way, shape or form.
Football trading has several advantages over horse trading, these include:
More Markets to trade: Whilst a horse racing event typically only has win and each-way markets a football match will have many more including match odds, correct score, Over/Under, Both Teams to Score and many more!
Not only does this massive range of markets provide more opportunities to the trader they also allow traders to develop more sophisticated strategies and to minimise risk or maximise rewards as and when necessary!
Less Volatility: Although not necessarily an advantage when scalping markets with lower volatility are more predictable and easier to trade for beginners.
More Liquidity: Generally speaking the mainstream, European football leagues are incredibly popular and attract a lot of money as a result. This is ideal for traders as getting in and out of liquid markets is usually much easier!
One of the big disadvantages, of trading football, however is that Football seasons typically have long summer breaks meaning little to no opportunities for the football trader during this time.
Although much less popular than horse racing and football when it comes to trading, golf still presents some great opportunities to the more experienced trader!
One of the most notable things about golf tournaments is that they regularly produce winners at 100/1 and beyond, something which is very rare in almost every other sport!
This guide aims to provide a quick overview of Betfair trading along with some of the techniques and technologies which make it possible.
It is important to note that, as with any form of trading, mastering the Betfair markets is something which will take time, patience and a lot of hard work!