What Is A Betting Exchange?

If you haven’t heard about Smarkets, get ready to be blown away.

Smarkets launched in August 2009 with a private, invitation-only version before opening fully to the public in February 2010. Smarkets is unlike anything else that we have in the United States. It is a betting exchange. Peer-to-peer trading of “commodities” takes place at Smarkets as opposed to placing your bets against the sportsbook. You bet against other users trading prices back and forth and Smarkets takes a commission on each bet placed.

Smarkets has handled over 15 billion pounds worth of trading. This is arguably the most advanced sportsbook technology in the world because it has to be. The system needs to be able to handle thousands of trades per second as bettors get their target lines and fire away.

Unfortunately, because of the Wire Act in the United States, Smarkets cannot bring its betting exchange across the pond. Instead, Smarkets will use the SBK App, which is more of a traditional sportsbook, though Smarkets advertises “industry-disrupting odds” spawned from the exchange in the UK.

Betting exchanges are going to be a foreign concept to a lot of people, so we’re going to explain the advantages, the disadvantages, and how they work just in case we get one in the United States at some point.

What Is A Betting Exchange?

Think of a betting exchange like the stock market. The teams/individual athletes are the stocks and the users are the traders. The odds are essentially created by the wisdom of crowds instead of a sportsbook looking to balance action on both sides of a game. In the case of Smarkets, they make money via a 2% commission on every winning wager.

Bets are made by putting out a request at your target price. Let’s say that you want to bet on the Dallas Cowboys at -3 at -113. If somebody is willing to take the Philadelphia Eagles +3 at -107, they will answer your request. Your bet on the Cowboys is called a back bet. Their bet on the Eagles is called a lay bet. The other user is basically playing “the house” or “the bookmaker” against you. They are, in essence, taking your action like a traditional bookmaker. The difference is that instead of winning money for the company, they win the money for themselves.

Why Should I Use A Betting Exchange?

There are a lot of reasons why what seems like an untraditional betting market is a good one. For one thing, you are not betting against a sportsbook that can ban you for being a winner. There are horror stories out there about that happening from taking too much money off of a sportsbook. At a betting exchange, the sportsbook takes its commission off of every wager and is happy with that. You are winning money off of other people.

Another reason to use a betting exchange is that you can find better odds there than anywhere else in the market. Remember, you are requesting a fellow trader to take you up on your offer to play the other side. That doesn’t happen at a traditional sportsbook. The line is the line unless you add or subtract to play an alternate line, which has a different vig. At a betting exchange, you float a price out there and see if you have any takers. You can get exactly the line that you want if somebody is willing to go against you on the other side. This is a much more competitive market because the sportsbooks are not worried about their hold percentages, which is why the vig is what it is. At a place like Smarkets, there is no hold percentage. The 2% commission comes out of the winnings no matter what. As a result, the odds are much more competitive with peer-to-peer betting.

Traders in the stock market are constantly buying and selling to accrue profits. Sometimes they hold positions for a while, but sometimes they don’t. With an exchange like Smarkets, options are almost always going to be there to guarantee a profit by trading in and out of a game. You can go back-and-forth getting positions at different odds and different vigs. A lot of exchange traders adopt this philosophy to minimize risk as much as possible.

Betting limits can be a hindrance for gamblers at a traditional sportsbook. At a betting exchange, it is all about liquidity. If somebody out there is willing to take the other side of your bet, your bet is good to go. It is all about buying (backing) and selling (laying) and the only cap on how much you can bet is whether or not somebody out there is willing to take the other side.

If you are willing to learn or already have a background in financial trading, this is a great option for you.

Why Shouldn’t I Use A Betting Exchange?

A lot of people will have a hard time maximizing the advantages of a betting exchange. You have to have an intimate knowledge of sports betting odds and what they mean. This is an advanced sportsbook in a lot of ways. You have to know the equity between getting -3 at -110 and -3 at -105.

Floating a bet out there that you want to buy is the easy part. Knowing when you are getting good value to take somebody else’s request is the harder part. You have to know when it is in your best interest to be the bettor and when you should be the bookmaker based on the odds and the vig.

Liquidity is a big part of the equation with a betting exchange. Building up a bankroll is possible, but sometimes you will be priced out of the advantageous opportunities if you don’t have enough capital. Also, being able to buy (back) and sell (lay) is a good way to limit your exposure and your risk, but it takes a good bit of bank to play both sides of a market repeatedly to keep guaranteeing profit.

Ultimately, a betting exchange may prove to be too advanced for the vast majority of bettors. It is dramatically different from the bettor vs. sportsbook modus operandi that we’ve had in Las Vegas forever and that will be hard for a lot of bettors to wrap their heads around.

If Smarkets were to advance to other states once we get sports betting across the country to create a much larger market, there will be more buyers and sellers to create a more robust marketplace. For now, because the Wire Act prohibits things like sports betting across state lines, there would be entirely too small of a market within one state.

Our Opinion

Here at ATS, we review and evaluate sports betting in the United States on a daily basis. We would be thrilled to finally see a betting exchange in the United States after years of longing for one. A betting exchange cultivates a pro-bettor environment and having something different is always a positive. It can be a catalyst for growth and innovation in the industry.

From a fairness standpoint, a betting exchange cannot be beaten. Unless accounts violate terms and conditions, they cannot be banned for winning nor have their limits cut for having too much success. It is peer-to-peer betting, so bettors are taking money off of each other instead of the sportsbook. It is about as free market as it gets in the sports betting industry.

Unfortunately, it is going to be a tough sell for bettors in the US. With so many traditional operators in the country, like DraftKings, FanDuel, PointsBet, BetRivers, and the other major gaming companies like BetMGM, William Hill, Caesars, and Hard Rock, getting a big enough piece of the market share would be a real challenge. A betting exchange only works with a large supply of buyers and sellers. Whether or not Smarkets could obtain that remains to be seen, but it would be a long process and would also require an amendment or outright removal of the Wire Act and that is extremely unlikely to happen.