The innovation of Betting Exchanges started back in 2000, and it changed the whole betting landscape forever.
Betfair are the most popular betting exchange at the moment, but they face stiff competition from the likes of Betdaq and Smarkets.
A Betting Exchange is peer-to-peer betting, that basically means me against you. Essentially, where a Betting Exchange differs from a conventional bookmaker is that as well as being able to back a football team to win, on a Betting Exchange we can also lay a football team to lose (you can do this on almost any sport, it could be a horse, golfer, cricket team, etc, you choose to lay.
At the moment there are two major Betting Exchanges in the market place, Betfair and Betdaq. There are other smaller rivals out there such as Smarkets, but they have a long way to go to compete with the might of organisations such as Betfair, and the Ladbrokes backed, Betdaq.
Betting Exchange liquidity is strongest on Betfair. For those not familiar with liquidity, it is the amount of money available in the market to bet with, or against.
If there is no, or little liquidity, then it is hard to impossible to get a bet matched. In essence, a Betting Exchange without liquidity is pretty much a waste of time, as you can't bet or trade on it.
As well as being able to lay a team or individual in a sporting event, other benefits of Betting Exchanges are the chance to trade out of a football match in play (you can cash out with most bookmakers these days as well), and being able to trade price movements before a match kicks off.
What Is A Betting Exchange?
A betting exchange is what's known as a peer to peer betting site - it allows it's members to bet against each other, rather than against a bookmaker.
So try to think of it like this. You think Manchester United will win on Saturday, but I don't. You put your tenner on Man Utd to win, and I take (lay) your £10 bet. If United win, you win, and I lose. United don't win, I keep your tenner.
It's not quite as straight forward as that, as you won't be able to find my tenner. All the money goes into a big pot, and it's out of there that you will win or lose. But that's the basic principle of a betting exchange.
What Is A Lay Bet?
You may have noticed I mentioned the word 'lay' in the previous section, and the 'Lay Bet' is the major difference between using a betting exchange and a bookmakers.
The Lay Bet is basically a bet against something happening. So as I eluded too earlier, I might think that Manchester United aren't going to win their match this Saturday, so I place a Lay Bet against them.
This means if Manchester United win, my Lay Bet loses. If it's a draw or United lose, then I win - as Manchester United didn't.
Say for example that Man Utd's odds were 2/1 and I place a Lay Bet of £10 on them, I would be liable to lose £20, should United win. If they were 3/1 and I placed a Lay Bet on £10, I would be liable to lose £30. And so on. While I would only win £10 if United didn't win.
History Of Betting Exchanges
Despite changing the betting landscape, Betting Exchanges are becoming endangered species with Betfair dominating the market place and seemingly eating up the opposition in the process.
When Betfair emerged back in 2000, I believe it changed gambling for the better, and in my opinion this has also led to the kind of gimmicks we see more and more of today, such as the cash out, and enhanced price promotions.
For years bookies just took our custom for granted. They just offered us garbage odds, and expected us to queue up to give them our money. And like sheep, we did.
Once the betting exchanges came along, it opened the door to us and totally changed our betting options. Instead of just having to take what the bookmakers offered us, all of a sudden we could decide to lay horses or football teams, etc, ourselves.
Our betting options changed overnight. This now meant the bookies had to offer us more, otherwise everyone would have just left en mass and went to the Betting Exchanges. Personally, that's what I did.
The innovation of the Betting Exchange also offered meant no bookmaker's over round, and also the chance to trade football, even before a ball is kicked. On the flip side to having no over round, there is the Betting Exchanges commission instead.
The Dominant Market Force
These days Betfair are the dominant market force, and are currently eating up the opposition. The World Bet Exchange has fallen by the wayside, with the main rivals to Betfair these days being Smarkets and Betdaq.
Back in the summer of 2012, Betfair launched it's own Sportsbook to operate alongside its peer-to-peer Betting Exchange. Meaning punters didn't have to go back to a conventional bookie to place an Ante Post horse racing bet (for example), or a fixed odds football accumulator bet.
This prompted Ladbrokes to move, and in January 2013 they purchased the Betdaq Betting Exchange. This gives Betdaq solid backing in their attempts to fight Betfair for a market share. It also gives Ladbrokes a firm footing in both the Sportsbook and Betting Exchange market places.
In response to the challenge from Ladbrokes/Betdaq, Betfair purchased the loss making bookmaker Blue Square in April 2013, giving them the complete database of the bookmaker's Sportbook customers.
The battle goes on for the market share of Betting Exchange customers. Currently Betfair is in the ascendancy, and looks set for a long battle with Betdaq and Smarkets for market supremacy.