The arrival of betting exchanges was the biggest shake up to the UK gambling industry for 40 years. The concept was the idea of ex city traders Andrew Black and Mark Davis, who between them, launched BetFair in June 2000.
Blacks 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 allow punters to trade odds.
The idea of buying shares, has been around for years and is the foundation of the world financial markets. For horse racing enthusiasts, trading odds on betting exchanges, was a new way to bet.
The attraction of betting exchanges is that a profit can be made no matter what the race outcome. The profit is likely to be smaller than regular betting, but the risk lower. This type of wager is generally referred to as hedge or arbitrage betting.
Compare the odds of races advertised by bookmakers prior to and after the race. There can be some big changes between the tissue odds and starting price.
If you could bet at high odds and lay at low odds [or vice versa] then you can create a hedge bet by trading those odds as the betting market develops. No matter what the result you will win money.
The betting calculator below, allows the punter to determine the size of the betting odds and betting stake that are necessary to create a hedge bet.
Assume that for a particular horse the odds changed from 4/1 to 2/1 and that you were lucky to have backed the horse at the 4/1. Then a hedge bet could be created by laying the same horse at 2/1.
In this example, for an initial stake of £100 at odds of 4/1 and assuming a betting exchange commission of 5%, then a £63 profit would be realised – no matter whether the horse wins or loses.
*Change the commission, odds and stake on the calculator to see the impact on profits made.