Features | Written by Animal Johns 30/07/2020

A Different Way to Wager on Sports

Betting exchanges like Smarkets are changing the way people can bet on sports.

For decades, little changed in regards to how people wagered on sports. A bettor contacted a bookmaking establishment. That person made a pick on the outcome of a sporting event and handed over a sum of cash to the sportsbook.

It really wasn’t until the internet came along in the 1990s that things would be different. And it seems like in the sports betting world, they’ve been changing ever since.

The worldwide web led to the advent of online sports betting operations that made it possible to wager with the click of a mouse. As the world changed more toward an instant gratification society, the demand for action only increased. That, plus the ability to live stream sporting matches, helped lead to the creation of live or in-play betting, allowing bettors to wager on the next outcome in the midst of competition.

The principle of how sports betting worked, though, remained relatively unaltered. Bettors still were placing wagers by contacting a sports betting service and via the odds provided by that sportsbook.

Betting exchanges are operations that are seeking to alter this process and to take betting on the world of sports into an entirely different realm. With a sports betting exchange, rather than wagering against a bookmaker, bettors contest with each other in a peer to peer format.

How Betting Exchanges Work

Betting exchanges are also commonly referred to in the industry as sports trading, or sports exchanges. They enable a bettor to take an approach to sports betting that is very similar to how someone would play the stock market.

The betting exchange is creating a marketplace that is enabling the sports bettor to wager on the fluctuation of a particular betting market, instead of making straight bets on the outcome of an event.

In the midst of this exchange, these sports traders are able to buy (called a back) or sell (referred to as a lay) the outcome of the event upon which they are making their trades. These trades take place in real time throughout the course of the event. The objective of the sports trader is to either set themselves up for a higher profit margin, if the team they invested in looking likely to be the winner, or to cut their losses down to a smaller cost if it is becoming apparent that the outcome they are wagering on clearly isn’t going to happen.

The betting exchanges make their money by clawing a percentage out of winning bets as their commission for facilitating the exchange.

The excitement in betting exchanges is as much in the rush of adrenaline as it is in the successful outcome of a wagering win. Like day trading in the stock market, sports trading can prove a stressful pursuit. Trades are continually taking place throughout the course of any event. Hesitation on the part of a player at precisely the wrong moment can prove to be the difference between cashing a winner at the end of the day, or wallowing amidst the pain of a bitter defeat.

The First Betting Exchanges

Betfair was one of the innovators that helped popularise sports exchanges

Flutter.com and Betfair were the original betting exchanges. In 2001, the two entities merged under the Betfair brand.

Betfair created the opportunity for bettors to compete against each other in a head to head wagering competition. All that was required was someone willing to wager on the opposite outcome. This sports betting company also instituted the ability for a bettor to back a losing outcome, which is commonly referred to today as a lay bet.

Another advantage to the bettor in this form of wagering is that instead of the bookmaker, it’s the players in the betting exchange who are establishing the odds. This enables bettors to get the best odds they can create via this scenario.

The constant action of the betting exchange created the environment that led to the development of live wagering. It showed bookmakers that there was still action to be created after a sporting event got underway, and that closing the betting window when the game commenced wasn’t in their best interests.

Along Came Sports Trading

In the evolutionary process of sports betting, it only made logical sense that betting exchanges would lead to sports trading. The SBK Exchange created by Smarkets and Ballstreet Trading are two of the more prominent sports trading entities.

Sports trading shares some characteristics with daily fantasy sports, since players will be battling with several other competitors to win the day.

With Ballstreet Trading, bettors buy and sell shares of teams that are playing in games that day. If one game looks like it’s going to be a blowout, then investing in many shares of the team that’s going to emerge victorious would be the winning strategy. However, if the game appears to be a tight contest, a balancing act of shares evenly distributed between both teams can prove to be the winning strategy.

Smarkets operates one of the world's largest betting exchanges. They’ve handled some $18 million in sports trades since launching in 2010. Current prices on events are posted on the Smarkets website or mobile app. As with the stock market, these prices fluctuate, so knowing when to get in and when to get out determines ultimate success or failure.

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