The Difference Between Bookmakers and Exchanges

Understanding the difference between bookmakers and betting exchanges is crucial.

Comparing bookmaker’s odds and offers is great, but the masses don’t seem to understand the advantages of betting exchanges and how they’re different.

In this article, we’re going to highlight the key differences between bookmakers and exchanges. List the positives and negatives for both, and offer an opinion on which one would suit you best. At the end of the day, everyone wants the best odds and to win the most amount of money possible.

Traditional Bookmakers v Betting Exchanges:

The biggest difference between traditional bookmakers and betting exchanges is who you are betting against. With a bookmaker, you are betting against that bookmaker – they offer odds on an outcome, and you decide whether or not to back those odds. For example; Manchester United are 2/1 to win – you either back it or you decide to back something else.

With an exchange, you have a lot more options. A betting exchange is a platform that offers a betting market for people to bet against each other. It essentially allows you to become a bookmaker because it gives you the option to lay a bet. For example, that Manchester United bet at 2/1 – you could decide to lay that on the exchange so now you win £10 (minus commission) if Manchester United fail to win, and lose £20 if they do. You also still have the option of backing the same bet as with the bookmaker.

The best-known bookmaker brands are the likes of Bet365, SkyBet and Paddy Power. While the best-known betting exchange is Betfair. There are only four betting exchanges; Betfair, Betdaq, Matchbook and SMarkets. There are countless bookmakers out there; it depends on which one you like really. As you can see by using Oddschecker, most of them copy each other these days. You don’t get too many standout prices.

How Bookmakers And Exchanges Make Money

Looking at how bookmakers and exchanges make money explains the key difference between the two, and also highlights why you can get better odds on exchanges. How a bookmaker makes money is by taking bets on all the outcomes and setting their overround over 100%.

You can get a betting exchange account here with the best commission rates.

Let’s break that down. Let’s say we have a football match and all three outcomes are 2/1. The bookmaker takes bets of £1,000 on each outcome.

Manchester United; £1,000 @ 2/1 = £2,000
Chelsea: £1,000 @ 2/1 = £2,000
Draw: £1,000 @ 2/1 = £2,000

Chelsea wins, so the bookmaker pays out £2,000 but the £1,000 bets on Manchester United and the draw lose so the bookmaker wins £2,000. The end result is £0 because the overround was 100%. Now, let’s increase the overround and make those three outcomes 7/4.

Manchester United: £1,000 @ 7/4 = £1,750
Chelsea: £1,000 @ 7/4 = £1,750
Draw £1,000 @ 7/4 = £1,750

In the 7/4 scenario, the bookmaker pays out £1,750 on winning bets but keeps the £2,000 from the losing bets; therefore they make £250. In an ideal world, a bookmaker will bet to an overround of 110% so they should, in theory, make 10% profit on that market.

What can happen to stop this is; that everyone wants to bet on the same outcome and the bookmaker ends up with a huge liability on one outcome, and of course huge wins if that selection loses. Bookmakers aren’t huge fans of risk though, and usually, they will change the odds to reflect the weight of money. Ideally, they want to take the same amount of bets on each outcome in a race or a match, and let the overround make their profit.

Check out this example where the bookmakers overround was 109%:

An Exchange is different. A betting exchange is just a platform; they have a website with a market on it and customers put their money into the market. All the customers can make whatever bets they like – back Manchester United at 2/1 (3.0) or lay Manchester United, back Chelsea etc etc. How an Exchange makes its money is they will take 5% Commission (or whatever Commission deal each account is on; there are 0% Commission offers when you sign up etc) on winning bets.

So, in this example. Person A has £1,000 on Manchester United at 2/1 (3.0) and they win. They will get paid out £1,900 because 5% commission taken off £2,000 is £100. There is no commission on losing bets, just winning bets. The Exchange makes money no matter what the outcome is, whereas with a traditional bookmaker, they can carry some big losses if a popular horse or football team win.

Advantages Of A Betting Exchange

There are huge advantages to using a betting exchange over a traditional bookmaker. If you start winning with a bookmaker, they will stake restrict you – ie reduce the amount of money you can place on bets. You will see screenshots on Twitter of customers only allowed to have 10p on a bet because their account is restricted. Beyond that, bookmakers will very likely close your account if you are a winning customer. That won’t happen on a betting exchange because you are betting against other people. If you win a huge amount of money over time – we’re talking more than likely six figures here – then you will have to pay a premium charge on Betfair Exchange. Other exchanges do have different levels of premier charge, but nothing is really said about it. For example with Betdaq, there are some stories of customers paying 10% commission rather than 2% commission (which is the standard commission rate on Betdaq).

Another massive advantage of a betting exchange is that you get better odds. This is because of the overround. Because bookmakers are trying to make money, their overround will never be 100%. With an exchange, the overround will likely be very close to 100% – we’re talking 101% or 102% depending on how the odds work out. You’d likely see 1.99 v 2.0 on exchange markets, whereas the same market with a bookmaker would very likely be 1.91 v 1.91. For this reason, you will get better odds a lot of the time. It’s just basic maths.

What you have to consider too when we are discussing getting better odds is how much you can have on those odds. In theory, you can have any amount you like on an exchange bet. However, in practice, you need there to be enough liquidity in the market. Because an exchange is a person v person platform, you need someone on the other end of that bet. You might want to have £1,000 on Manchester United, but there might only be £500 in the exchange at the price you want. That £500 is called liquidity in exchange which means the money in the market. In that situation, you can still place £1,000 into the market, taking the £500 on offer and waiting for someone else to take the rest of your bet. Liquidity is never an issue at big events, it’s usually down to the smaller events and how many hours before the event.

You could say that’s an advantage towards bookmakers because you could have the £1,000 with the bookmaker, but they would have to be willing to accept those stakes from you. If you are a winner, that’s unlikely. The biggest difference between a bookmaker and an exchange is lay betting.

Lay betting is when you are betting against something, and this is only possible on an exchange. Say you don’t fancy the favourite in the Grand National but you aren’t sure who is going to win. Instead of spending hours studying the form because you have to back other horses with a bookmaker, you can simply lay the favourite on Betfair Exchange meaning you profit if any other horse wins the race. In a nutshell, an exchange allows you to become a bookmaker and take bets; acting like a bookmaker would. Another example who be laying Manchester United, so you win if it’s a draw or Chelsea wins.

The last major advantage to betting on an exchange is being able to trade. Bookmakers saw that this was a huge advantage to a betting exchange, and they brought out the ability to “cash out” of your bet in-running. However, the value offered on cashing out on a bookmaker is terrible. It is MUCH better to bet on an exchange and trade out using the same exchange. Let’s go through an example to explain.

Let’s say you have £100 on Manchester United at 2/1 (3.0). They score the first goal and now they are trading evens (2.0).

Your position at the start of the game was;

Manchester United +£200
Chelsea -£100
Draw -£100

Now Manchester United are 1-0 up, and Chelsea are growing into the game. You feel a goal is coming and you want to take your money off the table so you lay Manchester United at evens (2.0). You position is now as follows:

Manchester United +£100
Chelsea £0
Draw £0

Because you have backed United for £100 and laid United for £100 at lower odds, you now win £100 if United win and lose nothing. You could also lock in £50 profit whatever the result by changing the £100 lay at 2.0 to £150, meaning you win £50 whatever the outcome.

Thousands of traders do this every day on Betfair Exchange countless times, making small gains on each trade which can add up to massive profits over the year.