Betting exchanges are not traditional bookmakers. Betting exchanges act as middlemen or brokers and provide the technology to match bets offered and placed by individuals. All bets on betting exchanges have been placed there by users who want to have a bet in the normal way (back), or "be the bookmaker" and offer odds to other punters (lay). Bets are therefore matched between people with opposing views.

Key Betting exchange features

You can back or lay a bet.
You can choose the odds you want to play at.
You only pay commission on winnings.

Back or lay

When you "back" a team, you are betting that the team will win.
When you "lay" a team, you are acting as bookmaker and offering odds against them winning. If that team lose, then you pick up the backers stake, just as a bookmaker would. If they win, then you pay out. You never know who you are betting against, your privacy and the confidentiality of your bets is maintained by the betting exchange firms secure site.

Choose odds

With betting exchange firms there is always a choice of what odds to accept. If you want better odds than are currently available, you can place an order for the odds you want, but be realistic because there has to be somebody prepared to lay the bet at those odds, and vice versa. Take a look at the odds before an event starts and you will see them change as visitors back and lay their bets. The odds often improve nearer to the kick off, as there are more people in the market.

Commission

You do not pay tax at betting exchange firms, and commission is only paid on your net winnings on each market. i.e. if you have multiple bets on a single market such as the win market on a horse race, some may win, some may lose, however you only pay commission on your NET winnings (not your stake). If you lose, you do not pay commission. This is particularly beneficial if you are 'playing the bookmaker' (laying bets), where you are often staking large amounts to win much smaller amounts.

Most betting exchange firms, such as Betfair, offer a customer incentive scheme. Your commission rate is set according to how much you use the exchange. The starting rate is 5% and the lowest is just 2%, which is calculated each week according to how many "Commission Points" you have accumulated.