On an exchange you bet against other people at prices the market sets, you can bet that something will not happen, and nobody limits you for winning. How it works, what it costs and where the learning curve bites.
An exchange is a marketplace. One user offers to back a horse at 5.00 for 100; another offers to lay it, accepting the bet at that price and risking 400 to win 100. When the two prices meet the bet is matched, and the exchange holds the money until the result. No trader sets the price; the queue of offers does. Betfair is by far the largest; Smarkets, Matchbook and Betdaq are smaller and cheaper on commission, with thinner markets.
Backing is what you do at a bookmaker: stake 100 at 5.00 to win 400. Laying is the other side: accept someone’s 100 at 5.00, receive their 100 if the horse loses, pay 400 if it wins. Laying lets you bet against a favourite you think is overpriced, hedge a bet you placed elsewhere, and, at 1.05 on an almost-certain outcome, act as a small insurer. The liability of a lay, the amount you can lose, is the stake times the odds minus one, and the exchange takes it from your balance when the bet is matched.
The exchange charges a percentage of net winnings on each market, between 2 and 5 percent depending on the exchange, the country and your volume; nothing on losing markets, nothing on stakes. On a market where you win 100, a 5 percent commission takes 5. Because the underlying prices carry almost no margin, the exchange price after commission usually beats the best bookmaker on anything above 2.00, and by a wide margin on longer prices.
The amount waiting to be matched at each price. Premier League matches, major races and Grand Slam tennis carry hundreds of thousands; a Tuesday second-division match may carry a few hundred; an esports map market may carry nothing. Unmatched bets sit in the queue until someone takes them or the market suspends. On thin markets, the bookmaker is the better venue.
Because you can back and lay the same outcome at different times and prices, positions can be closed before the event ends: the cash-out mechanism of every sportsbook is this operation with a haircut added. Traders make a living from small movements on liquid markets; casual users benefit from being able to hedge a bet at a fair price rather than at the sportsbook’s.
The exchange earns commission whoever wins, so it has no reason to limit a winning customer, and it does not. It is where limited bettors go, and where the sharpest prices on the market are set. The costs are the learning curve, the in-play bet delay, and the premium charge that Betfair applies to a small number of very profitable accounts.
The United Kingdom, Ireland, Italy, Spain, Sweden, Denmark, Australia and a handful of other markets have licensed exchanges; most of the world does not, and the Betfair exchange refuses registrations from countries where it is not licensed. Our country pages say where.
The liability is the stake times the odds minus one, taken from your balance when matched; it is bounded and visible before you confirm.
No; they earn commission on every winning bet whoever places it.
After commission, on liquid markets and prices above 2.00, almost always; on thin markets, no.