Betting Exchanges are a necessary tool in the arsenal of every bettor. You would need them not only for trading but also for arbitrage to expand your variability on the sharp side and for value betting to be able to get the best odds on the market. However not all exchanges are made equal and you will need to consider liquidity, commission models and a few other factors in order to decide which one will work best for your goals. Here I would like to go through the main exchanges and shortly discuss them so that you can get a clearer picture of this part of the betting world.
Exchanges work similar to bookies in the sense that they offer you the chance to place a bet on whatever event you would like at whatever odds are available at the moment. The difference here is the one taking your bet is not the exchange itself but another one of its customers. Since unlike a bookie the exchange is not directly involved in your bet they need to find another way to earn their profit. So they charge you a commission on the bet you place. The commission is charged upon your winnings or upon a mixture between winnings and stake, depending on the exchange. What are the options?
Betfair, Betdaq: Declining commission charged on market winnings
Let’s start with the almighty Betfair. Betfair is by far the biggest betting exchange in the industry. Accordingly they also charge the highest commissions, which have been steadily increasing in time as the their customer base has been growing. One would expect with increasing the commissions the majority of customers would head to the competition as what they offer in terms of business model is not much different. However Betfair managed to pull that off for a reason.
With the exchanges there are two things that are of main interest to the bettor, namely commission and liquidity. Even with the lowest commission if there is no one on the other side to match your trades the exchange wouldn’t be very useful. Liquidity comes with customers, so the bigger guys have a serious advantage here. One could say it is quite a monopolistic business, especially as it comes to certain niche markets. Having the critical mass of customers bringing the highest liquidity in most (though not all) markets, Betfair can afford to charge the highest commissions from all exchanges.
Commissions and Premium Charges
Commission varies from country to country but generally starts around 6% of the market winnings and can go down to about 2.5% provided you meet certain turnover targets.
In addition to the high commissions, in recent years Betfair introduced the Premium Charges, which take away significant amounts of the winnings of its customers (ranging from 20 to 60%) after those winnings exceed certain threshold. I have also read it takes into account the ratio between winnings and losses. Whether it was introduced to tackle unfair practices or just because Betfair wanted a bigger slice from the profits of its successful customers, this is in any case an unpleasant situation. However if you have already got to it you probably don’t need my advice on how to manage it. Not having any experience with the issue, theoretically some arbing should do the work, but don’t take my word for it.
Betdaq offers very similar business model to Betfair’s. In fact the commissions themselves are similar, but Betdaq tries to compete with its bigger rival by setting up lower turnover targets to bring down the commissions faster. Moreover, to my knowledge you do not get Premium Charges. I believe Betdaq are the most serious competitor of Betfair to this date, so on most markets they also offer decent liquidity.
Smarkets: Flat commission on market winnings
Smarkets are offering a stable 2% commission on market net winnings, which on theory is the cheapest option you can get. However due to being relatively new and small so far they have not managed to attract as much liquidity as their bigger competitors. I suppose it also has to do with the fact that the stable commission doesn’t help in attracting the professional traders and they are the ones bringing the most turnover. Still, depending on your bet size they do have liquidity in certain markets and often pop up in arbitrage pairs, so if you are not the biggest shark in the sea they are worth a try.
Matchbook: Flat commission on stake and bet winnings
Matchbook is the one exchange which looks the closest to a bookmaker if we look at the commission model. They take 1% of your winnings in case of a win or 1% of the smaller from your stake and your potential winnings in case of a loss. This roughly translates to around 2% commission in the other exchanges as you can see in the table below. This is still not a bad price, especially considering that Matchbook offers probably the best liquidity on certain niche markets like American sports and a few others. Matchbook managed to do this via a targeted marketing effort, whereby they offered for a limited time a 0% commission on certain markets and managed to attract a crowd of bettors.
However, the most serious drawback of Matchbook in my opinion is that it charges commission on a bet and not on market basis. All others charge you on net market winnings, so you can lay and back a market all you want, since they calculate your commission based on net winnings on the market. Matchbook on the other hand charges you commission for every trade you make, making trading on Matchbook very expensive. So in summary, Matchbook is not a viable option for trading but is a useful tool for arbing and value betting since it offers great liquidity in a number of markets.
I have compiled a table calculating the effective price you get after matching or being matched on all the above exchanges:
|Matchbook ||Betfair, Betdaq (2%) / Smarkets ||Betfair, Betdaq (4%)
|odds taken||expected commission||effective odds||expected commission||effective odds||expected commission||effective odds
Betfair, Smarkets and Betdaq are similar, whereas Matchbook is identical to a 2% commission account in the others for odds higher than 2 and gets more and more beneficial the lower the odds get.
In summary, Betfair and Betdaq offer similar models of higher (and declining) commissions and good liquidity. Of those, the liquidity in Betfair is a bit better and commissions a bit higher. Smarkets offers a flat low commission, however the markets are small so it is better suited for low-turnover bettors. And finally Matchbook offers great options for certain niche markets (line American sports) but is unsuitable for trading. In my opinion all four exchanges have something to offer to the betting world and I recommend utilizing all of them in achieving your betting goals. If you have any questions or comments let me know below. Also, make sure to follow me on Twitter and Facebook to get all the new articles. Good luck with your bets and see you around!