What Is a Betting Exchange: Back, Lay Bets and How They Work
A betting exchange is a marketplace where punters bet against each other - not against a bookmaker. You can back an outcome as normal, or take the bookmaker's role and lay against it. This guide explains both sides, how liability works, and what exchanges offer that traditional bookmakers cannot.
Aiden Rawlings
9 minute read
Back, lay and trading covered
1 What a Betting Exchange Is
A betting exchange allows bettors to wager against other bettors instead of a bookmaker. When you place a bet on a betting exchange, another person who is using that same exchange will take the bet against yours. The exchange will match the two bets, take both stakes, and pay the winner of the bet.
Betting exchanges do not take any of the bets themselves. Instead, the betting exchange exists as a marketplace for bets to be placed - similar to how stocks are exchanged between investors - rather than placing bets themselves as a bookmaker would. The exchange earns its profit through placing a small commission on all winning bets placed on the exchange.
Because there is no margin built into the odds placed on a betting exchange, the odds are closer to the true probability of a particular event occurring. Additionally, punters can place bets on either side of the bet, increasing the number of different betting strategies available on a betting exchange compared to those available with a bookmaker.
2 Back Bets - Betting for an Outcome
Placing a back bet on a betting exchange is the same as placing a bet on a bookmaker. In both cases, the punter is placing money that a specific outcome from a particular event will occur. If the event and outcome does occur, the backer is paid their stake back and winnings according to the odds of the bet. If the outcome does not happen, the backer loses their stake.
Instead of a bookmaker setting the odds for each back bet, the odds on a betting exchange are set by the users of the exchange. The prices for outcomes are established through supply and demand in the exchange's marketplace for bets to be placed. Users who wish to back a particular outcome will drive the price of that outcome down, and the lack of users who wish to lay an outcome will drive the price of that outcome up.
Punters can request better odds on a betting exchange by creating a bet that has been posted but that does not have an opposing bet placed against it. These requested bets will remain in this posted state until another user accepts the odds offered by the requesting punter. If no one accepts the requested odds by the time the event has taken place, the posted bet will be cancelled and the stake will be returned to the requesting punter.
3 Lay Bets - Betting Against an Outcome
Placing a lay bet is only available on betting exchanges - no licensed Australian bookmaker offers lay bets. By laying an outcome, the punter is creating a bet that the outcome will not occur.
Should the outcome that is being laid not occur, the punter wins the stake of the punter that placed the bet against the outcome. Should the outcome that was laid do occur, the punter must pay winnings to the backer. Because the winnings that a punter may win can be greater than the stake that is required of them, the punter's potential loss will be greater than their potential profit from laying a bet.
The exchange will hold the punter's liability for the lay bet within their account before the event. Should the punter's account balance not hold the liability required for the lay bet, the lay bet cannot be placed. Following the event, the liability will either be released back to the punter (if their lay bet wins) or paid to the backer (if the lay loses).
4 Lay Liability - How Much You Risk When Laying
The liability is the most important figure to understand regarding lay bets. The liability is the maximum amount of money that the punter can lose should their laid outcome occur. The liability is automatically calculated by the betting exchange and held from the punter's account before the event.
Laying at 2.00 on a $100 stake: $100 x (2.00 - 1) = $100 liability
Laying at 3.00 on a $100 stake: $100 x (3.00 - 1) = $200 liability
Laying at 5.00 on a $100 stake: $100 x (5.00 - 1) = $400 liability
The liability figure will change based upon the odds for that particular bet. At odds of 2.00, the liability will be the same as the potential profit for the punter. At odds of 5.00, however, the potential loss will be four times the potential profit. Thus, laying favourites (with short odds) is less risky than laying outsiders (with long odds).
Practical implications
Prior to laying any bet, the punter should ensure that their account has enough money to cover the liability of the lay bet. For instance, laying a runner at 10.00 will require a stake of $1,800 to cover the liability for a backer stake of $200. If the punter does not have enough money to cover this liability, their lay bet will be rejected.
One strategy to consider before laying a bet is the potential profit of the lay bet relative to the liability of the lay bet. A lay bet of 1.50 at $100 will result in a potential profit of $100 but a liability of $50. A lay bet of 4.00 will result in a potential profit of $100 with a liability of $300. In both instances, the profit and liability of the lay bet can be considered relative to the odds to determine whether the lay bet is sensible.
Betting Exchange vs Traditional Bookmaker
| Feature | Traditional Bookmaker | Betting Exchange |
|---|---|---|
| Who you bet against | The bookmaker (the house) | Other punters |
| Bet types available | Back only | Back and lay |
| How odds are set | By the bookmaker's traders | By supply and demand among users |
| Built-in margin | Yes - typically 105-110% overround | No - commission on winnings only |
| Winning accounts | Often restricted or closed | Welcome - commission earned regardless |
| Trading positions | Not possible | Yes - back then lay to lock in profit |
| Odds quality | Reduced by margin | Closer to true probability |
5 Commission, Odds Quality and Why Exchanges Differ
Bookmakers include a profit margin into the odds that they offer to bettors. By pricing the bookmaker's selections such that the sum of the probabilities of all outcomes is greater than 100%, the bookmaker is guaranteed of earning a profit regardless of the outcome of the events. Bookmakers in Australia typically offer markets with an overround of around 5-10% on their most popular sporting events.
Betting exchanges do not have any margin built into their prices. Instead, the odds that are set on betting exchanges are the true probabilities of those outcomes occurring. Rather than a margin, betting exchanges collect a small commission from all winning bets placed on the exchange by the punters.
Betfair's commission structure in Australia
The commission that is placed on Betfair Australia varies by market. For instance, Australian and New Zealand racing markets have a commission between 2% and 10% of the net winning stake for each race. International sporting markets have lower commission percentages. Additionally, the commission is applied to the net winning stake of each market. Thus, if a punter wins some bets within a market but loses others, the commission will be applied to the net win of those bets rather than to each winning bet.
Unmatched bets and liquidity
On an exchange, a bet is only confirmed once it is matched by another user taking the opposite side. If you back at a price that no one is willing to lay, your bet is unmatched and your stake is not at risk. Before an event, unmatched bets are displayed in the order book - the amounts visible next to each price show how much money is currently waiting to be matched at those odds.
The liquidity of a market is the total amount of money placed into that market. Some markets are very liquid with a high volume of money placed into those markets by punters. For instance, racing at Flemington racecourse, the AFL Grand Final, and the NRL Grand Final are all very liquid markets on Betfair. Other markets, such as state league football or racing at smaller meetings, have limited liquidity.
6 Trading - Locking In Profit Before the Event Ends
Trading is a strategy that is only available to punters using a betting exchange. Trading occurs when a punter places a back bet at one price but also lays that same outcome at another price on the exchange. This is referred to as achieving a green book - all the outcomes have a profit associated with them.
The most common trading strategy on betting exchanges is to back a selection at long odds prior to an event, and then to lay that same selection at the shortened odds after it is determined that the selection is the favourite to win the event.
To trade a selection at a betting exchange, a punter places a lay stake that is calculated using a formula that divides the stake that is placed on the back bet by the lay odds. Depending on the odds of the event, additional calculations can be made to determine the stake that should be placed if the liabilities and profits are to be evened out. Instead of calculating these trades by hand, most traders use an automatic trade-out function on Betfair that will calculate the lay stake required to even out the profits that will be earned by each outcome.
In-play trading
In-play betting (or live betting) is also available on betting exchanges. During an in-play bet, the odds change rapidly in response to the unfolding events within the sport being bet upon. For instance, a punter can place a back bet on a team prior to a live sporting event. If that team scores the goal (or other desired outcome) before the end of the sporting event, that punter can place a lay bet on that same team at the shortened odds to lock in their winnings prior to the sporting event ending.
7 Betting Exchanges in Australia
Betfair Australia is the only licensed betting exchange available to punters in Australia. Betfair Australia has a licence from the Northern Territory. Other international betting exchanges, such as Smarkets, Matchbook, and Betdaq, are not licensed to receive punters from Australia as their customers.
Markets available on Betfair Australia
The Australian exchange offers sports and racing markets including thoroughbred racing, harness racing, greyhound racing, AFL, NRL, A-League soccer, cricket, tennis, rugby union and various international sports events. Racing markets offer the highest level of liquidity on the exchange - particularly for metropolitan races and Group 1 thoroughbred racing events where it competes directly with TAB pools. Sports markets exhibit the highest liquidity for AFL and NRL during the finals periods.
Commission and Starting Price
Commission on Betfair Australia is charged at a Market Base Rate that varies by market. Racing markets in Australia and New Zealand typically carry higher rates than international sports markets, reflecting the product fees Betfair pays to racing bodies. Betfair Points, earned through betting activity, can be converted into a commission discount.
Betfair also offers a Starting Price (BSP) market option on most racing events. By selecting the BSP option, your bet will be matched to runners at the final exchange price for that race - you do not have to worry about placing an unmatched order up to the jump of the race. This is useful for placing bets on racing markets early in the race when there is limited liquidity.
Why exchanges welcome winning bettors
Most Australian bookmakers will restrict the amount that accounts that make consistent profit are able to bet. This is because a winning customer is directly costly to a bookmaker. However, betting exchanges do not feature this restriction on customers who win most of their bets. This is because when punters win on an exchange, they generate commission for that exchange - when they lose, they do not. Betfair does not restrict the size of bets that customers place, only the liquidity of those bets.
For a ranked comparison of exchange options available to Australian punters, see our betting exchanges page.
Frequently Asked Questions
What is a betting exchange?
A betting exchange allows customers to wager directly against each other - rather than against a bookmaker. When you place a bet on a certain outcome, someone else places a lay bet against that outcome. The betting exchange matches the two parties, holds the stakes of each bet, and pays out one of the parties based on the outcome of the race or sporting event. The exchange earns revenue from a commission on winning bets rather than a bookmaker's margin on all outcomes.
What is the difference between backing and laying?
By backing an outcome, you are placing a bet that that outcome will occur - the same as if you were placing a bet on most bookmakers. When you lay an outcome, you are placing a bet that the outcome will not occur. You are taking the place of the bookmaker in accepting bets from those who back an outcome. If the outcome does not occur as bet, you win the stake of those who laid on that outcome. If the outcome does occur, you must pay the stake profit to the backer. Placing a lay bet is only available on betting exchanges.
What is lay liability and how is it calculated?
The liability for a lay bet is the maximum amount of money that you will lose if your lay bet fails. The liability for a lay bet is calculated as the stake of the backer multiplied by the decimal odds of the race or event minus 1. If you lay an outcome at decimal odds of 3.00 with a stake of $100 from the backer, the liability of the lay bet is $200. The exchange holds this amount from your betting balance prior to the event. The profit that you stand to win from a successful lay bet is equal to the stake of the backer. The higher the odds of an event, the higher the liability for a lay bet compared to the potential profit.
Why are exchange odds better than bookmaker odds?
Bookmakers include a margin into the odds that they offer to customers. Most sportsbook markets in Australia feature a margin of 105-110% implied probability in their outcomes. Betting exchanges do not feature a margin into the odds; customers place bets at the exchange at the odds that they determine through supply and demand for those outcomes. Exchanges take a commission only on winning bets. In most markets, the odds at the exchange are generally more advantageous to the customer than those offered by bookmakers.
Is Betfair the only betting exchange in Australia?
Yes. Betfair is the only betting exchange that is licenced in Australia. The licence is issued by the Northern Territory Racing Commission. All other international betting exchanges, such as Smarkets, Matchbook and Betdaq are licenced within the UK and other international markets. Australians are therefore limited in their access to betting exchanges to Betfair alone.
What is trading or a green book on a betting exchange?
Trading on the exchange involves placing a back bet and a lay bet on the same outcome. The back bet is placed at longer odds and the lay bet is placed at shorter odds after the price of the outcome has shortened. Placing a back bet at longer odds than you are likely to win and a lay bet at shorter odds than the winning price will ensure that you win a profit regardless of the outcome of the event. The exchange automatically calculates the lay stake required to even out the trade and displays the outcome of the trade on the exchange screen. Trading is only made possible on betting exchanges since bookmakers do not allow lay bets.
Responsible Gambling
Lay betting introduces a form of risk that differs from standard betting - your potential loss on a lay bet can exceed your potential profit, particularly at higher odds. Understand your liability before placing any lay bet, and ensure your account balance covers it in full. Only bet with money you can afford to lose.
If gambling is affecting your wellbeing or that of someone you know, free and confidential help is available.