Betting exchanges were introduced in 2000. Initially, concerns were raised about their affecting the integrity of racing due to them allowing bets on losing horses. These concerns have now been addressed with safeguards in place to monitor irregular patterns of betting. Due to the competitive prices offered, they have now become a popular way of betting.
A betting exchange acts as an agent to allow individuals to place bets with one another, charging a commission for its services. Suppose you wanted to have a bet with your friend on the favourite on the first race at Ascot. You think the horse will win and your friend thinks the horse will lose. You agree to each stake £50 and whoever wins takes the money staked. If your horse wins, you win the £100 and if your horse loses your friend wins the £100. In this situation, you have made a bet at ‘evens’ that your horse will win and your friend has made a bet at ‘evens’ that the horse will lose.
A betting exchange makes it possible for you to make bets like this except with strangers. They provide the facilities to make the betting possible and charge a commission for their services. They provide a website that allows you to come into contact with other people who want to bet and the means to transfer money from one person to another. Both you and the other bettors remain anonymous to each other. The betting exchange will keep details of the bets you have placed so that any foul play, such as people trying to manipulate the markets, can be investigated.
Unlike a bookmaker, the betting exchange does not decide the prices of the horses, instead the individuals making bets do. In the example just given, each person had agreed to odds of evens. However, they could have decided to bet at different odds. Suppose your friend wanted to bet but was only willing to stake £25 and you were willing to bet £50. You would then be betting at odds of 1/2 that your horse would win and your friend would be betting at odds of 2/1 that the horse would lose. If the horse wins you will win £75 less commission. If the horse loses your friend will win £75 less commission. If you were placing the bet with a betting exchange you would basically indicate that you wanted to make a bet of 1/2 on the horse and therefore needed someone to make the opposite bet of 2/1. As soon as someone agrees to match your bet, it is made.
This arrangement gives greater flexibility than betting with a bookmaker. With a bookmaker, you can only bet on horses to win. With a betting exchange you can also bet that a horse will lose. With a traditional bookmaker, a horse may have a price of, for example, 4/1 and you can bet that the horse will win at 4/1. The bookmaker is effectively backing the horse to lose at 1/4. With a betting exchange, you also have the opportunity to take the place of the bookmaker and bet that the horse will lose at 1/4.
Minimum stakes vary but are around £1 to £2. Unlike with a bookmaker there is no maximum bet. As long as you can find someone to match your bet, you can stake as much as you wish.
Commission is charged at around 1 to 5 per cent. Different exchanges calculate the commission in different ways. Some charge commission on all bets placed (stakes) and others charge commission on net winnings. Some exchanges reduce the commissin for loyal customers so that the more you bet the less the commission charged. Currently bets are tax free, however this may change m the future as governments introduce new legislation.