odds-on betting exchanges

Betting Exchange Markets

The arrival of betting exchanges was the biggest shake up to the gambling industry for over 40 years. The concept was the idea of ex city trader's Andrew Black and Mark Davis, who between them, launched BetFair in June 2000.

Black's model was relatively simple. Just like in stock trades, were people who want to buy shares are matched with people who want to sell shares, exchanges match people of differing sporting opinions. So, rather than bet against bookmakers, people are betting against each other. Betting exchanges gave the ordinary punter the chance to be the bookmaker and trade odds for the first time.

Starting Price

On betting exchanges, punters choose their own odds, whereas with bookmakers, the punter get's the starting price (SP). The problem with the SP is that it contains an element of profitability for the bookmaker. This makes successful long term betting difficult to achieve. See also mathematics of betting.

Trading odds

The idea of buying or selling a value in a commodity or shares has been around for many years and is the foundation of the world financial markets. Horse racing odds trading involves buying or selling a horse's price in the anticipation that the odds will change between the time the bet is made and race off time. The attraction of this form of betting is that a profit can be made no matter what the race outcome. The profit is likely to be smaller than conventional betting but the risk lower. This type of wager is generally referred to as hedge or arbitrage betting.

Hedge betting example

The attached market shows the price/volume over time for a typical UK horse race. Over a period of time the odds for the horse in question, shift from around 2/1 to 4/1 at the off time.

By trading the horses odds - a profit can be made - no matter what the result.

i.e. horse racing arbitrage calculator

(1) First - bet the horse to win £400 at 4/1 then
(2) Second - Lay the same horse at 2/1 to lose £166
(3) Result ? - a £64 profit ! - regardless of whether the horse won or lost.

A similar profit can be made on odds that increase.

Stop Loss

Stop loss is a term given to the strategy by which the punter tries to reduce any losses in the event of the odds going opposite direction to that anticipated. In these cases the punter cannot create a hedge bet and takes a small loss.

Getting an edge