Bookmaker Vs Betting Exchange

When you’re new to betting, it can sometimes be difficult knowing the difference between all of the different available options.

When you’re new to betting, it can sometimes be difficult knowing the difference between all of the different available options.One common area of confusion is centred around the use of betting exchanges and sportsbooks. Both have their uses in different situations, so we’re going to help clear up any confusion you may have to help you make the best use of each.

What’s the difference?

First things first, we’re going to start by explaining the difference between the two.

You have no doubt used a sportsbook before, or a traditional high street bookmaker. The first time the term bookmaker was recorded was in 1862. A bookmaker is named as such, because they used to set the odds and record the details of the bets taken in a book. Pretty obvious when you stop and think about it!

The bookmaker creates what is known as the ‘book’. This is where he forms the betting market for an event, with each of the different selections that are available given a price. He prices each selection so that the combined probabilities add up to slightly over 100%. Why over 100%? Well, this is mainly how they make their money. They add what is known as an over-round (we’ll cover this in a later section).

You, the customer, then place a bet with the bookmaker at the available odds, and if your selection wins, you’re paid at a multiple of the odds the bookmaker offered. A betting exchange differs because they don’t set odds, they don’t take your bets, and they don’t pay you out of their own pocket.

The betting exchange company just provides a platform for users to bet against each other. One user acts as the bookmaker, and the other person plays the role of a traditional gambler. Because of this, the betting market looks completely different, as you’ll see below:

In the above picture, a back bet is a traditional bet. You place a bet and you’re paid out at a multiple of the odds you backed your selection at.

A lay bet (in pink), is where a gambler plays the role of the bookmaker. They are effectively saying they don’t think a certain selection will win, and they offer odds to anyone who wishes to accept the bet. So if you placed a lay bet of the above selection, Sir Titan, at odds of 4.4, you would state how much money you’re willing to lay. For this example, lets that that’s just £10.

If Sir Titan won the race, as you’re playing the role of the bookmaker, you are liable to pay out £44 to the winner on the other side of the bet. If you were correct, and Sir Titan failed to win, you would get to keep their £10.

So how does the betting exchange make their money? Well, they take a small commission of between 2% & 5% on all winning bets.

Commission vs. Over round

We have mentioned how both a sportsbook and an exchange make their money, so we will explain a little further.

In real life terms, a correct book percentage should add up to 100%. This is because the probability of one of the horses winning a horse race should it be completed is 100%. Odds are representative of the percentage chance each horse has of winning a race. For example:

Horse Odds Probability
Sir Titan3.7526.6%
Cape Icon7.513.3%
Firm Decisions7.513.3%
Human Nature9.011.1%
Manton Grange17.05.88%
Tailors Row15.06.67%

The sharp eyed amongst you will notice that the implied probability of each selection in the above table adds up to 116.33%. This is because the above book is one created by a sportsbook. The ‘overround’ of 16.66% means that the bookmaker expects to make a profit of 16.66% for the total amount of bets placed on the market. So if they take £1000 in bets on the market, they expect a profit of £166.60.

To achieve this overround number, the bookmaker is offering you odds that are less than actual probability your chosen has of winning the race.In the sportsbook market, a £10 bet on the horse Athassel will give you a return of £260 (£250 profit).

In comparison, lets look at the prices on the exchange:

Horse Odds Probability
Sir Titan4.323.3%
Cape Icon7.812.85
Firm Decisions195.26%
Human Nature166.25%
Manton Grange234.35%
Tailors Row323.13%

The probability of all of these odds adds up to 100.81%. And as a result, what you will notice is that some of the odds available on the betting exchange are much bigger. However, you need to remember that if you win, your winnings will be subject to a commission of between 2 & 5%, depending on the betting exchange you use.

For arguments sake, if you backed the same horse as in the previous example, Athassel, at odds of 44.0 for a £10 stake, you will now stand to have a return of £440. This is minus the 5% commission you pay on your profit, giving you a total return of £418.50 (£408.50 profit).This is an amazing £158.50 more for your bet, just by using a betting exchange!

Account Restrictions

If you use a traditional bookmaker, they may pretend otherwise, but it hurts them if you win. They often use big wins as marketing material to encourage others to bet with them, but the fact remains that if the bookmaker deems you to be an unprofitable customer, they will take action.

Now, don’t worry, they’re not going to send a team of heavies round to your house. But what they will do is one of two things:

1. Close your account completely
2. Severely restrict the amount of money you can place on a bet

Some bookies go for the nuclear approach. Once they determine a player is unprofitable for the business, they will tell them in no uncertain terms that they’re not welcome and close the account. Alternatively, they will take the slightly more diplomatic and sneaky option, and severely limit the amount the punter can place on bets. Currently, you may be able to place thousands on one bet. If they restrict you? Expect that to be reduced to tiny amount like £3.50.

So how do they judge which accounts to close? Each bookmaker platform has an inbuilt algorithm which rates the behaviour of each player. It applies a score to each bet, with weighting given to lots of different factors. These are things like stake, price of the bet compared to the rest of the industry, how popular the bet is, whether it was a winner, and so on.

What they are trying to eliminate are professional, or shrewd gamblers that recognise the importance of value betting. Most sportsbooks, unfortunately, only like gamblers that bet purely for entertainment. So when your algorithm score rates you as a good gambler and unprofitable for their business? Your account will be flagged, and looked at by their traders who then decide which action to take. Now, thankfully, you will be pleased to hear that things are different with exchange betting. In fact, things couldn’t be any more different!

A betting exchange wants players to win. They receive a commission no matter what the result, and if you’re winning, you’re more likely to keep using their platform. Although, the most popular exchange, Betfair Sports has another way of penalising winning players. This is in the form of what they call their ‘premium charge’.

This charge, effectively, is a tax on winning players. This alone is a complex issue, however, a key point is this: only 0.05% of Betfair customers are expected to be profitable enough, over a long enough period of time, to incur a premium charge. So if you get to the point where that is a concern, you’re doing very well!

Betting Options

One of the key things to consider when deciding whether to use a sportsbook or an exchange, is if it provides you with the capability to place the type of bet you’re looking to do. There are 2 types of betting for which your option is limited to a particular platform, and 1 type of bet where you can choose between either option. We’ll run through each of these three.

1. Multiples

Betting on multiples may not be the most profitable way of betting, but it sure as hell is fun! And if you are someone who likes nothing more than betting on a multiple, then your only choice is to place those bets via a sportsbook. This is because the bookmaker supplies the odds. As a result, they can multiply your bets placed on each market and pay you out at the accumulative odds should every selection win.

An exchange doesn’t have this capability because you’re placing a bet with a range of different people, rather than the bookmaker. And as we mentioned previously, a sportsbooks main aim is to entertain its customers. As multiples are more about entertainment, it is rightfully at home on a sportsbook.

2. Trading

Trading is a very in-depth topic to cover, and there are thousands of different strategies, but it is one of the main benefits of exchange betting.

So what is trading? Trading is when you back and lay selections within the same market to reduce risk, create a no lose situation, or maybe even win no matter the outcome.You can take advantage of price movements within a market to lock in guaranteed profit. Think of exchange trading as like trading the stock market.

With a stock market, you buy stock low and sell high. The aim is to take advantage of a movement in price to get a profit.The same goes for exchange betting. For arguments sake, if you back your favourite Football team at odds of 3.25 for a stake of £10, ordinarily you would have to wait for them to win the match before you could be sure of a profit.

However, if they go 1-0 up early in the match, the natural thing is for their odds to decrease. For arguments sake, they may now be 1.6 to win the match.If you place an opposing bet and lay them to win the match for £20.31 you have created a situation where you will win no matter the result.

West Ham win, your back selection wins giving you a profit minus the £20.31 that you layed .If West Ham lose, your back selection loses, but your lay bet wins. This gives you a profit no matter the outcome.

3. Singles

You can bet on singles with both an exchange and a sportsbook, and really, this choice should be made depending on the price of your chosen selection. It’s advisable that you shop around and don’t stay chained to one bookmaker or an exchange because of convenience.

There are excellent price comparison tools such as oddschecker & betbrain which allow you to pinpoint who has the best odds. Over the long term, the small differences really add up and can making the difference between being at a loss or in profit.

Free Bets And Bonuses

One of the biggest areas in which bookmakers and exchange products differ is with their free bets and bonus schemes. Remember where we discussed that sportsbook products have a greater focus on player entertainment?Well, the reason for free bets and bonuses is to keep you entertained and coming back for more, and to continue your play and enjoyment of their product. So it is logical that this is a marketing strategy used by sportsbooks, and sparingly by exchanges.

Now, they all offer welcome bonuses. Both bookmakers and exchange products would like you to come and try their product. So they offer welcome bonuses in the form of free bets when you sign up. For exchange products, this is where the promotions start to dry up. Of course, they would like you to continue to use their platform. But there is far less competition, with just 4 major exchange platforms to choose from. Thus, they prefer to invest in improving their tech and let the quality of their platform do the talking.

Compare that to sportsbooks, who are at a point of saturation. Saturation with the number of sportsbooks in the market. Saturation with the size of their products with thousands of sports and betting options. The power is held by the customer, so the only thing many sportsbooks have to differentiate themselves is their fancy brands, and promotions.

So if you love a promotion, you can expect to find a varied range to explore among the hundreds of different reputable sportsbook products. There is literally something for everyone, and as you are in the position of power as a customer, you can shop around and take advantage of them all!