BETTING EXCHANGE GUIDE

Forget the recent furore over the role of betting exchanges in race fixing - they are a fantastic tool for gamblers and are here to stay. Over the course of this article we give you the goods on this exciting way to bet. Which are the best exchanges, how can you get the edge when using them and what are the pitfalls you should be wary of? Betting expert Paul Kealy reports.



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The emergence of betting exchanges is probably the most staggering success story of the new millennium, with Betfair, the leading exchange, now matching millions of pounds in bets every week and at busy times processing 12,000 bets per minute.

That's an astonishing number, yet there are still thousands of regular punters who either have no idea how an exchange works or are afraid of the concept, at least partly because of the scare stories bandied around by self-interested bookmakers trying to knock the new kid on the block down to size. It's a battle they will lose.

As an exchange convert, I'm no longer so interested in how it works, but as to why the hell someone had to wait to invent it until after I'd spent nearly 20 fruitless years betting against bookmakers who have not only expertise on their side but also punter-crippling margins that render profit-making impossible to all but the shrewdest of operators.

And if you think about it for a moment, you will quickly realize that we have been but a whisker away from punting nirvana for almost 100 years. Of course, we had to wait for computer technology to allow punters to bet from their living rooms first (or at the office behind the boss's back), but the advent of exchanges was clearly inevitable.
I'm talking about Tote betting, a form of wagering just a few mutational steps from what is now known as a betting exchange.

The first automatic totalisator machine was installed at Ellerslie Racecourse in New Zealand in 1913 and was quickly copied around the world. The French call it pari-mutuel, the literal translation of which is bet-mutual or, in other words, betting amongst each other.

And that is what an exchange is (with several added advantages): a website that allows you, the punter, to back your opinion against that of another punter who disagrees with you. You get rid of the bookmaker, who slowly bleeds you dry thanks to his horrific percentages.

Of course, this is all written with perfect hindsight, because if I possessed just half of the foresight required it would be me supping champagne and watching horses in my colours winning Newmarket's July Stakes rather than those of Andrew Black (co-owner of Captain Hurricane), who is the man responsible for the birth of Betfair, on Oaks Day in June 2000.



Tote-al toss
Back then, Betfair matched barely £50,000 of bets in a week, but the growth since has been almost exponential, and the figures mentioned at the start of this article will probably seem pretty small just a year from now.

Why? Because exchange betting is the best, some would say only, way to bet. The advantages over a run-of-the-mill Tote operation that you will find at any British racecourse are enormous. Most readers should have a basic understanding of how the Tote works but, to summarize: you make a selection and hand your money over to a third party, who then redistributes the winnings after taking a hefty cut for themselves. The amount of money you receive upon a successful wager depends entirely on how much of the pool was bet on your selection.

And there's problem number one: no price control. On an exchange you know the odds before the event takes place, the price you receive being mutually agreeable with the other party taking your wager. If the price on offer is not acceptable to you, you simply put in an order and leave it on the exchange, hoping someone will take it. If they don't, you're at least safe in the knowledge that you have not struck a wager that would have been unacceptable had you known the price in advance.

But that's enough of the analogy with the Tote, because there are several other advantages to talk about without the need to refer back to the obvious failings of an outdated system of wagering. The following is a short list, with an explanation of the main benefits of exchange betting over all other forms.



Value
Whenever you take a price on an exchange, the chances are that price is the best around. Why? Because the bookmaker, who builds in his own profit-margin so that he wins if he lays every runner in the field, has been taken out of the equation. An exchange is a super-competitive marketplace, where the percentages for layers only just scrape above break-even point. In short, bookmakers, with overheads to consider, simply could not afford to offer you prices that are freely available on an exchange.

This is not always the case, so it is advisable that you still search around for the best odds, and factor in the rate of commission that you are asked to pay. Commission rates vary from firm to firm. Betfair charges on a sliding scale from 5% to 2% depending on how much you bet (the more money you turn over, the lower the rate will be), while others like Sporting Options and Betdaq charge less, but have a smaller share of the market. Commission is charged only on the profit that you make on any particular market, not the total stake. In other words, if you back two horses in a single race and one wins, you pay commission on the return less your total stake on both runners.



Laying
Rather like in spread betting, every runner in a field - whether it is horses, dogs or football matches - is a two-way book. You can back it win or lay it to lose. If your one strong opinion is that the favourite is bad value, you no longer have to spend hours trying to unravel the rest of the puzzle. You simply lay the favourite.

'Play bookmaker' is a term often used, but not one that is encouraged by the exchanges themselves, who prefer to regard it as a bet on a selection to lose rather than a practice of bookmaking. It could be argued, for instance, that a bet on the winner of a two-runner event, such as a tennis match, is effectively a lay of the other runner.



Trading
The ability to back and lay has opened up a whole new world and, to an extent at least, all-out punting is going out of fashion. The concept of closing out for a profit irrespective of end result will not be new to spread punters, but with spreads you normally have to wait for a big market move as you have to pay the bookmakers' margin twice, although this has changed with the arrival of Cantor Sport's spread betting exchange Spreadfair (click the 'How To' button).

On an exchange, just a tiny move can see you lock in a profit. A perfect example is the recent Poland vs England football match. Having thrown away a 2-0 lead against Austria, England were available at 1.96 (a shade under evens) for much of the time leading up to match day in Poland. However, the predictable flood of money for Sven's boys came in on the day and England were around 1.89 at the off.

A trader could have had £100 on England at 1.96 and laid £100 at 1.89 for a guaranteed no-lose profit of £7 if England won. That's a trivial sum, but the amount of money generated on a big football match means it would have been just as easy to have £10,000 at 1.96 and lay £10,000 at 1.89 for a free £700 bet. Alternatively, you could have laid back £10,375 at 1.89 and switched your computer off safe in the knowledge that you have just made around £370 irrespective of what happens in the match.

That, of course, is a rather simple example (though in the majority of England matches you will be able to do just that) and in practice it is not so easy - otherwise nobody would lose. But if you have the ability to successfully predict a market move in either direction, you have a licence to make money without any risk at all. And what bookmaker would want to let you do that?



Betting In-Running
Not the newest concept in the world, but one revolutionised by exchanges, particularly Betfair's in-running horse race markets, as Betfair is the only place you can bet after the off since there isn't the required liquidity on the other exchanges yet.

Possibly the biggest key to betting in-running on a horserace is to do the opposite of what your mind is telling you. It sounds daft, but if you are sitting in front of your TV and you notice a horse travelling extremely well, everyone else is likely to notice it as well. A mad rush to get on ensues and the price collapses so much it becomes a value lay. The shortest price at which you can bet on an exchange is 1.01 or 1/100, and long odds-on shots (even sometimes those at 1/100) in-running get beaten every day.

You can bet in-running on virtually every live (and some non-live) sport and the demand for this facility should not be underestimated. In a previous US Open tennis tournament, the women's semi-final between Jennifer Capriati and Elena Dementieva attracted minimal pre-match interest (women's tennis is hardly a popular betting medium), with barely £20,000 matched by the early evening. It was different once this Sky-televised match got under way, though, and by the end of the three-setter Betfair had recorded in excess of £4.5m of matched bets.



Anti-Corruption
You can't discuss exchanges without bringing up the subject of corruption, because nowadays it seems that all exchange publicity is bad publicity. This is largely because bookmakers, with more regard for their own profits than the actual integrity of betting mediums, continually stir up a hornet's nest.

Yes, it is possible to influence results and profit from them should you so wish, but that has always been the case. However, if you do so on an exchange you are more likely to get caught. That's because all transactions are traceable directly to you and, thanks to the Memoranda of Understanding that both Betfair and Sporting Options have with the Jockey Club and most other sporting governing bodies, those details are available to be scrutinised.



Don't be a Luddite
And the transparency of markets also acts as a warning sign for punters. The best example of this is non-runners in ante-post horse races. Whenever a horse incurs an injury, that information stays out of the public domain for some period of time. It may be just a few minutes, but it could be days (the owner could be out of the country and trainer wants to inform him/her first).

In pre-exchange days, bookmakers (with moles in every yard) would lengthen the price sufficiently enough to attract bets, but not to attract suspicion. These days, greed dictates that those immediately in the know (not necessarily connections) snap up every penny they can get on an exchange and the horse drifts markedly, sometimes out to 1000. If that happens, you know not to bet.

The same sort of thing happens with injuries to sportsmen. Employ the simple golden rule that if the price looks too good to be true, it probably is, and you won't go far wrong.

But the advantages for bettors as a whole outweigh the negatives by such a margin that any forward-thinking punter cannot afford to live without an exchange. It's time to log on.



Reproduced with the kind permission of Inside Edge magazine.