Games - Bet exchange

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	Games - Bet exchange

A betting exchange or p2p gambling website is a fairly recent Internet phenomenon, and is used to describe a website acting as a broker between parties for the placement of bets (gambling, in other words). The concept is similar to that of a stock exchange or a futures exchange, where in this case the commodity being traded is a bet, rather than a stock or futures contract. Most betting on a betting exchange is a form of fixed odds gambling.

History

The concept was first brought to the public by the UK website Flutter.com in May 2000 in person-to-person betting form, followed closely by UK-based Betfair in June 2000. Betfair embraced a pure exchange model - one Flutter later adopted and even improved upon in places - but first-mover advantage proved decisive for Betfair. Though Flutter managed to climb to a reported 30% market share, Flutter's backers were content to broker a merger which left Betfair the dominant partner by a reported ratio of 84:16. Post merger, Flutter's customers were transferred to Betfair's system, which was later upgraded to embrace some of Flutter's functionality. Betfair went from strength to strength and controls a reported 90% of global exchange activity today. In late 2004, Betfair announced a rescue package which resulted in it absorbing the customers of Sporting Options, which had gone into administration with debts in excess of £5 million.

As with other types of exchanges, betting exchanges thrive on liquidity and customers tend to focus on the exchange where they are confident their bet can be paired up with a matching counterbet. Breaking with British tradition, Betfair uses decimal odds instead of fractional (traditional) odds because they are more popular globally. Some of its competitors (such as BackAndLay and, later, BETDAQ) allow customers to use fractional odds if they prefer.

Exchanges make their money by charging a commission which is calculated as a percentage of net winnings for each customer on each event, or market. Gamblers whose betting activities have traditionally been restricted by bookmakers (normally for winning too much money) have found these sites a boon since they are now able to place bets of a size unrestricted by the exchange - the only restriction is that one or more opposing customers need to be willing match their bets. Moreover, the odds available on a betting exchange are usually better than those offered by bookmakers in spite of the commission charged.

Exchanges have their limitations. Exchanges are not suited to unrestricted multiple parlay betting. Betfair does offer accumulators of their own content management construction, but these are limited in number. Users cannot determine the outcomes contained in accumulators themselves. Exchanges also tend to restrict the odds that can be offered to between 1.01 (1/100) and 1000 (999/1).

Unsurprisingly, Betfair's success has attracted a number of rivals. These include BETDAQ, iBetx, BackAndLay, Matchbook, BetBug, and Betbull. Like Betfair, the heavily-funded BETDAQ also charges a base rate of 5% commission, whereas iBetx has a 3% base and bargain basement outfit BackAndLay charges 1%. Other exchanges include the Trade Exchange Network and their Intrade and Tradesports sites, which, instead of charging commission on net market profits, has transaction charges of five cents to $10. Tradesports claims to be the most liquid site for US events while Betfair undoubtedly has the most liquidity for European and global markets. BetBug is a US-focused betting exchange which uses file-sharing technology, and thereby claims to avoid conflict with the Wire Act making it a legal way for US citizens to wager online. In addition, the Iowa Electronic Markets, which is a low-limit bet exchange for selected political and economic events, is considered legal under US law, because the market is primarily used for the purposes of research.

"Laying" an outcome

Exchanges also offer the opportunity to lay outcomes, which is to bet that a particular participant in an event will lose. This is the position bookmakers take when offering a bet for somebody to back that the participant will win.

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