What is a betting exchange?
Consider the following betting websites:
William Hill, Betfair, Smarkets, Bet365, Ladbrokes.
They appear very similar,
but there are two types of company here,
and they operate very differently!
On one side we have bookmakers,
and on the other we have betting exchanges.
The traditional bookmakers are William Hill, Bet365, and Ladbrokes.
The betting exchanges include Betfair, Smarkets, and Ladbrokes’ exchange.
So, what’s the difference?
A traditional bookmaker like William Hill
first draws up their own private beliefs in the probability of events,
then offers you some fixed odds based on those beliefs.
For example,
in today’s Liverpool vs. Tottenham game,
they offer you:
| Selection | Decimal Odds |
|---|
| Tottenham to win | 6.00 |
| Liverpool to win | 1.55 |
| Draw | 4.20 |
You decide on one of these selections to bet on (e.g. Liverpool to win, with odds 1.55),
then enter a stake (e.g. $10).
The bookmaker accepts,
and agrees to pay you $15.50 if Liverpool win.
In contrast,
a betting exchange like Betfair
allows its users to play the role of bookmaker.
Instead of Betfair drawing up its own private beliefs in the probability of events,
and then offering you odds based on this,
Betfair instead allows its users to offer other users
whatever odds they are comfortable with.
To do so,
Betfair provide a more complex interface like this:
| Selection | Back | Lay |
|---|
| Tottenham to win | 6.60 | 6.80 |
| Liverpool to win | 1.60 | 1.61 |
| Draw | 4.40 | 4.50 |
The values under the “Back” column have a similar meaning
to before:
if you place $10 on Liverpool to win with odds 1.60,
then if Liverpool win, you’ll receive $16;
but if Liverpool don’t win, you’ll receive nothing.
This is a “back bet”,
and it’s similar to what you do at a bookmaker.
The “Lay” column is new.
This lets you play the role of bookmaker!
If you place a $10 lay bet on Liverpool to win at odds 1.60,
you’re effectively allowing another user
to place a normal $10 back bet against you.
So if Liverpool win, you’ll have to pay them $16;
but if Liverpool don’t win, you’ll keep their $10.
Actually, the table of odds that Betfair provide is just a guide.
Unlike at a bookmakers,
you can place back bets and lay bets at any odds you like,
and any stake you like!
This then goes into a pool of unmatched bets.
For example,
Betfair could currently have the following unmatched bets:
- Alice backs Liverpool to win at 1.61, and would stake up to $10.
- Bob lays Liverpool to win at 1.60, and would accept up to a $50 stake.
In this scenario, could Betfair match Alice and Bob’s bets?
No:
for Alice’s $10,
Bob is only willing to pay her $16 if Liverpool win,
but Alice wants at least $16.10.
So these bets sit unmatched,
waiting for someone to place a new bet which would match with them.
Now, imagine that I, Jim, placed a new unmatched bet:
- Jim backs Liverpool to win at 1.60, and would stake up to $20.
Now, Jim’s bet can be matched with Bob’s!
Jim buys $20 of Bob’s $50 offer,
leaving Bob with a partially matched bet.
This leads us to a new state:
- Jim backs Liverpool to win at 1.60, and stakes $20.
(A matched bet.)
- Alice backs Liverpool to win at 1.61, and would stake up to $10.
(An unmatched bet.)
- Bob lays Liverpool to win at 1.60, and would accept up to a $50 stake,
of which $20 has been accepted.
(A partially matched bet.)
Similar posts
More by Jim
What does the dot do in JavaScript?
foo.bar, foo.bar(), or foo.bar = baz - what do they mean? A deep dive into prototypical inheritance and getters/setters. 2020-11-01
Smear phishing: a new Android vulnerability
Trick Android to display an SMS as coming from any contact. Convincing phishing vuln, but still unpatched. 2020-08-06
A probabilistic pub quiz for nerds
A “true or false” quiz where you respond with your confidence level, and the optimal strategy is to report your true belief. 2020-04-26
Time is running out to catch COVID-19
Simulation shows it’s rational to deliberately infect yourself with COVID-19 early on to get treatment, but after healthcare capacity is exceeded, it’s better to avoid infection. Includes interactive parameters and visualizations. 2020-03-14
The inception bar: a new phishing method
A new phishing technique that displays a fake URL bar in Chrome for mobile. A key innovation is the “scroll jail” that traps the user in a fake browser. 2019-04-27
The hacker hype cycle
I got started with simple web development, but because enamored with increasingly esoteric programming concepts, leading to a “trough of hipster technologies” before returning to more productive work. 2019-03-23
Project C-43: the lost origins of asymmetric crypto
Bob invents asymmetric cryptography by playing loud white noise to obscure Alice’s message, which he can cancel out but an eavesdropper cannot. This idea, published in 1944 by Walter Koenig Jr., is the forgotten origin of asymmetric crypto. 2019-02-16
How Hacker News stays interesting
Hacker News buried my post on conspiracy theories in my family due to overheated discussion, not censorship. Moderation keeps the site focused on interesting technical content. 2019-01-26
My parents are Flat-Earthers
For decades, my parents have been working up to Flat-Earther beliefs. From Egyptology to Jehovah’s Witnesses to theories that human built the Moon billions of years in the future. Surprisingly, it doesn’t affect their successful lives very much. For me, it’s a fun family pastime. 2019-01-20
The dots do matter: how to scam a Gmail user
Gmail’s “dots don’t matter” feature lets scammers create an account on, say, Netflix, with your email address but different dots. Results in convincing phishing emails. 2018-04-07
The sorry state of OpenSSL usability
OpenSSL’s inadequate documentation, confusing key formats, and deprecated interfaces make it difficult to use, despite its importance. 2017-12-02
I hate telephones
I hate telephones. Some rational reasons: lack of authentication, no spam filtering, forced synchronous communication. But also just a visceral fear. 2017-11-08
The Three Ts of Time, Thought and Typing: measuring cost on the web
Businesses often tout “free” services, but the real costs come in terms of time, thought, and typing required from users. Reducing these “Three Ts” is key to improving sign-up flows and increasing conversions. 2017-10-26
Granddad died today
Granddad died. The unspoken practice of death-by-dehydration in the NHS. The Liverpool Care Pathway. Assisted dying in the UK. The importance of planning in end-of-life care. 2017-05-19
How do I call a program in C, setting up standard pipes?
A C function to create a new process, set up its standard input/output/error pipes, and return a struct containing the process ID and pipe file descriptors. 2017-02-17
Your syntax highlighter is wrong
Syntax highlighters make value judgments about code. Most highlighters judge that comments are cruft, and try to hide them. Most diff viewers judge that code deletions are bad. 2014-05-11
Want to build a fantastic product using LLMs? I work at
Granola where we're building the future IDE for knowledge work. Come and work with us!
Read more or
get in touch! This page copyright James Fisher 2019. Content is not associated with my employer. Found an error? Edit this page.
TigYog
Kickabout