How a Betting Exchange Works: Back, Lay and Real Costs

How does a betting exchange work? Other users set the price

A bookmaker is a shop: one price on the shelf, and the shop is always the other side of your bet. An exchange is a noticeboard. Each user pins up a price and an amount, and a bet exists only when two pins meet.

In the board below, blue cells are prices you can back at, taken from offers made to lay. Pink cells are prices you can lay at. The best back price is the highest blue, the best lay price the lowest pink, and the space between them is the gap.

Illustrative order book for one outcome
Place in the queue	Back at	Amount waiting	Lay at	Amount waiting
Best price	3.00	220	3.05	90
Second	2.98	140	3.10	160
Third	2.96	80	3.15	60

These figures are illustrative and invented for the example. The outlined cells are the best prices.

The gap here is 0.05, the price of impatience: take 3.00 now, or offer 3.05 and wait.

An offer of 100 at 3.05 joins the queue behind the 90 already there, since offers at one price are, as a rule, served in the order they arrived. If a user then lays 150 at 3.05, 90 goes to the earlier offer and 60 to yours: 60 matched, 40 unmatched, still waiting.

The bookmaker margin calculator turns any pair of prices into a margin, for comparison with a book.

What does exchange commission do to your odds?

An exchange shows the price, then keeps a percentage of what you win. Betfair, Betdaq, Smarkets and Matchbook each describe their standard charge as a share of net winnings in a market, and a losing market pays none.

A winning 100 back at 3.00 makes a gross profit of 200. The effective odds are 1 + (odds - 1) × (1 - rate).

At 2 percent the exchange keeps 4.00: you net 196.00, effective odds 2.96.
At 5 percent it keeps 10.00: you net 190.00, effective odds 2.90.
At 6 percent it keeps 12.00: you net 188.00, effective odds 2.88.

These rates are assumptions, but the 6 percent case is published: Betfair's Australian help page publishes a Market Base Rate of 6% for sport and international racing markets, 10% for NRL, and 8% or 10% for Australian racing, depending on state and racing code.

For the bookmaker side, the assumption is a 5 percent margin spread proportionally. A fair 3.00 becomes 1 / (1/3 × 1.05) = 2.857, or 2.86. That is a teaching hypothesis, and it describes no real bookmaker.

Profit given up on a winning 100 bet at fair odds of 3.00

Illustrative data

View the data as a table

Profit given up on a winning 100 bet at fair odds of 3.00
Route (effective odds)	Profit given up
Exchange 2% (2.96)	4.00
Exchange 5% (2.90)	10.00
Exchange 6% (2.88)	12.00
Book, 5% margin (2.86)	14.29

Illustrative data, calculated from stated assumptions; no market was measured. Each bar is the part of a fair profit of 200 that a winning bet gives up: 4.00, 10.00 and 12.00 to the exchange at assumed rates of 2, 5 and 6 percent, 14.29 to an assumed bookmaker margin of 5 percent spread proportionally. Effective odds are in brackets.

Read the chart with care: the exchange takes its cut only when you win, while a bookmaker's margin sits in every price. The charge also falls on a market's net: back the home win 100 at 3.00 and the draw 100 at 4.00, and a home win makes 200 and loses 100, so the percentage applies to 100: 5.00 at 5 percent.

The part where you can lose more than you staked

Backing has a floor: the most you can lose is your stake. Laying removes it, because you offer the price and pay the backer if the outcome happens.

Lay 100 at 3.00 and a backer staking 100 wins 200 if the outcome happens. That 200 is your liability, 100 × (3.00 - 1). If the outcome does not happen you win the 100, less the exchange's percentage: 95 at 5 percent. As a rule your balance must cover the liability while the bet is open.

Back 100 or lay 100 at odds of 3.00
Question	Back 100 at 3.00	Lay 100 at 3.00
You bet that	The outcome happens	The outcome does not happen
Most you can lose	100, your stake	200, your liability
If it happens	You win 200	You lose 200
If it does not	You lose 100	You win 100

Before any exchange percentage.

To risk 100 at most, lay 50 at 3.00: liability 100, win 50. We would place a first back bet before any lay. A back can only cost its stake, while a lay on a longshot can cost many times what it wins: at 21.00, a lay of 100 carries a liability of 2,000 to win 100. Hedging and break-even points are in the guide to back and lay betting.

Why your bet sits there and nobody takes it

Liquidity is the money waiting at each price. A bet is matched when another user has taken your offer and unmatched while nobody has.

The total matched on the event says little. Read the amount waiting at your price, on your side.

Stake at or below the amount at the best price: expect a full match at once, though offers can be withdrawn until matched, so leave room.
Stake above it: the part that shows is matched, and the rest waits.
Price a step or more from the best: expect to wait, and accept that nobody may take it.

Part matched. A stake of 100 can show 60 matched and 40 unmatched: the 60 settles without waiting for the 40.

An offer open at the start of the event. On Betfair, unmatched bets on the Exchange lapse by default and are cancelled at the start of the event, according to Betfair's help pages. Other exchanges may handle this differently. We would not leave an offer open into kick-off and hope, because a price that was fair a minute earlier can be wrong once the game is live.

A suspended market. An exchange can suspend a market at key moments of a live event. It takes no new bets meanwhile, and each exchange's rules set what happens to waiting offers.

Your first back and lay bets, step by step

Check the rules, then verify early
Read the exchange's terms for your country of residence and the law where you live; you must be 18 or older. Send your identity documents at registration, since checks that drag on are a frequent complaint.
Deposit 50 and find your rate
Deposit only what you can afford to lose, and note the rate in your market's rules so you can work out your net before you bet.
Back 10 at 3.00 where money is waiting
On a major football match, back 10 at the best back price. If it wins, the gross profit is 20; at 5 percent the exchange keeps 1.00 and you net 19.00. If it loses, you lose 10.
Lay 5 at 3.00, reading the liability first
The slip should show a liability of 10; if it does not, stop and find out why. If the outcome fails you win 5, or 4.75 at 5 percent. Then cancel any unmatched part you no longer want.

What an exchange will not do for you

It promises no wins. A back can lose its stake and a lay can lose more than it can win.
It takes its percentage even on a small win: a profit of 10 leaves 9.50 at 5 percent.
It cannot supply a counterparty at your price, and liquidity can be thin away from the biggest events.
It runs identity and compliance checks, and public reviews of several exchanges describe accounts held while they run.
It may charge very large winners more. Betfair's help pages describe an extra charge, called Premium Charge or Expert Fee, paid by "a very small number of the most profitable customers on the Betfair Exchange".
Legality and availability vary by country, and checking yours is your job.

Prediction markets look similar but are a different product

A prediction market lists a contract on a question, such as whether an event will happen. It trades between 0 and 1 and pays 1 if the answer is yes. Buying yes at 0.40 resembles backing at 2.50, since 1 / 0.40 = 2.50, and selling resembles laying. A contract can also pay on a question that has nothing to do with sport. The resemblance stops at the mechanics: rules, fees and regulators differ, and sports contracts are only one kind. Nothing above about exchange commission, unmatched offers or account checks carries over unchecked. The guide to prediction markets explains the contracts.

What should you check before you open an account abroad?

Who may open an account, at what rate, and with how much liquidity change from one exchange and one country to the next, so work through these in order before you deposit:

The official terms for your country. Does the exchange accept residents of your country, and is using it legal where you live? Its terms answer the first question; the second is yours to check.
The liquidity on your sport. Open the market you want and read the amounts at the best prices. Published reviews of Betdaq and Smarkets describe thinner liquidity than Betfair's away from the biggest events.
The rate you would really pay. Betdaq splits its rate by residence and Betfair sets it market by market (the table has the details), so treat any "2 percent" headline as the price for a few territories until you have seen your own rate.

The table sets four exchanges against those checks; a ranking is in the guide to the best betting exchange sites.

Exchange commission and the evidence
Exchange	Exchange commission stated	What decides the rate	Evidence level
Betfair	Set per market and shown on each market's Rules tab.	Each market's Market Base Rate, applied to net winnings.	Stated by the operator, on its Australian help pages.
Betdaq	2% for residents of the UK, Ireland, Gibraltar and Jersey; 5% for residents of all other territories.	Country of residence.	Stated by the operator, on its home page.
Smarkets	2% standard on net winnings in each market; a Pro tier at 1% and a Select tier at 3%.	Account tier; conditions not confirmed.	Read on an educational page of the operator: check the live fee page.
Matchbook	No percentage given here. The operator says it charges on the profit of a winning market.	Not confirmed: check the operator's terms.	Not confirmed: check the operator's terms.

Rates and pages change, so read the live terms before you deposit. Many published tests come from sites with a commercial interest in the operator, and public reviews over-represent unhappy customers.

Reaching exchanges through a broker

A betting broker gives you one account that reaches several exchanges and books, but you become the broker's customer: one more layer, with its own identity checks, fees and complaint record, and no change to the law where you live or the countries it excludes. Access looks like this (the order is fixed and carries no rank):

BetInAsia. BLACK lists Matchbook, Betdaq and Smarkets, and BetInAsia also offers SharpExchange, at a rate sources quote differently. Reviews describe accounts held under review and withdrawals delayed for weeks.
AsianConnect. OrbitX, plus Betfair liquidity through Piwi247: exchange liquidity that may be Betfair-derived, with no Betfair account involved. Withdrawals frozen during repeated identity checks are a very frequent complaint in recent negative reviews.
MadMarket. Edge lists Betfair Exchange among its venues, and SharpExchange is on offer. No independent review or user report could be found.
Sportmarket. FairExchange is a separate direct account with an unnamed supplier, and a euro account reaches Pinnacle, Asian books and several exchanges. Reviews mention slow identity checks and live bets left pending, then accepted late or refused; there is no PayPal.

Orbit Exchange is reachable through the exchange named SharpExchange on BetInAsia's platform, OrbitX on AsianConnect's, SharpExchange on MadMarket's and FairExchange on Sportmarket's. Only AsianConnect states a partnership with Orbit; the others give access under their own exchange names. For Betfair itself, see whether you can use Betfair from your country. A broker is not ideal for a small, occasional bettor, since the extra layer pays for itself only with volume.

What do people ask about betting exchanges?

Who takes the other side of my bet on a betting exchange?

Another user, as a rule. The exchange runs the market and keeps its commission; your back is matched with someone else's offer to lay at the same price, and if nobody takes your price it stays unmatched.

Back or lay: what is the difference, and what is the most I can lose?

To back is to bet that something will happen, to lay that it will not. A back can lose your stake. A lay can lose your liability, the backer's stake × (odds - 1): lay 100 at 3.00 and you risk 200 to win 100.

How does exchange commission work?

An exchange takes a percentage of your net winnings in a market, and a losing market pays none. At 5 percent, 3.00 becomes effective odds of 2.90 (1 + 2.00 × 0.95). Rates differ by exchange, and at some by residence or account tier.

Why is my bet unmatched?

Nobody has taken your price yet: the money waiting there may be smaller than your stake, your price may sit a step or more from the best, or earlier offers may be queued ahead of yours.

Can an exchange restrict a winning account?

Yes. An exchange earns from commission on volume, so it has less reason to fear a winner than a bookmaker does, but identity and compliance checks can freeze an account, and Betfair describes an extra charge for a very small number of its most profitable customers. The guide to bookies that do not limit winners compares the models.

Betting Exchange Explained: Your First Back and Lay Bets With Real Numbers