A bookmaker sets a price and takes your bet. A betting exchange does neither. It is a marketplace where users bet against each other, and the exchange simply matches them and takes a commission on winnings. Betfair, launched in 2000, is the largest. This one difference changes almost everything about how you can bet.
Backing and laying
To back is the normal bet: you say a team will win. To lay is the opposite: you say it will not, and you act as the bookmaker for whoever backs it. Every matched bet on an exchange has a backer on one side and a layer on the other.
Say you lay Arsenal at 2.00 for £10. If Arsenal do not win, you keep the backer’s £10. If they do win, you pay out £10 — the backer’s profit. The amount you can lose is called your liability. At longer prices it is bigger: lay £10 at 5.00 and your liability is £40.
Laying is useful because “this will not happen” is often easier to judge than “this specific thing will”. In a three-horse race you can lay the favourite and profit if either of the other two wins.
Reading the ladder
An exchange market shows two columns of prices. On the back side you see the best prices other users are offering to lay to you; on the lay side, the best prices they want to back at. The gap between them is the spread, and in a busy market it is just one tick. Beside each price is the amount of money waiting there. That is the liquidity: how much you can get matched at that price right now.
You can take a price that is already there and be matched instantly, or ask for a better one and wait to see if someone takes it. Unmatched bets sit in the queue and can be cancelled any time.
Commission
Exchanges make money by charging a percentage of your net winnings on each market. Betfair’s base rate in the UK is 5%, and it can be lower depending on the market, your country and how much you bet. Because there is no margin built into every price, exchange odds are usually better than a bookmaker’s even after commission — especially on favourites, and especially close to the start.
Trading: closing a position before the end
Because you can both back and lay the same thing, you do not have to wait for the result. Back a team at 3.00, and if the price later drops to 2.00 — perhaps a key opponent is injured — you can lay it at 2.00 for a larger stake and lock in a profit whichever way the match goes. This is called greening up, after the green numbers the exchange shows when every outcome pays you.
Prices move constantly before a match and even faster during it, so a trader is really betting on price movement, not on the result. It looks a lot like trading shares, and the skills carry over: reacting to news before the market does, managing liability, and knowing when to take a small loss.
Things that catch people out
- Liability. Laying at big prices risks many times your stake. Always check the liability figure before you confirm.
- Being unmatched. Asking for a better price means you might not get a bet at all. In a fast in-play market that can leave you exposed on one side of a trade.
- Delays in play. Exchanges add a short delay to in-play bets so that nobody can act on a goal before the market sees it. Prices can move a long way inside that delay.
- Liquidity. A great price with £3 behind it is not a great price.
Why this matters for a model
An exchange is the natural home for a systematic strategy. Better prices mean a smaller edge is enough. Laying means you can act when your model thinks the market is too keen on something, not only when it is too cold. And because the exchange has an API, a strategy can place, check and close orders without a human clicking. Kelly Stake connects to your own Betfair account for exactly this — the money never leaves it.