Why Are Exchange Odds Better Than Fixed Odds?

odds under a magnifying glassSince Betfair’s launch in 2000, betting exchanges have grown in popularity. There are numerous reasons for this, including the fact that they allow you to effectively bet on the field rather than a favourite, which is often good for races or competitions where this is a clear favourite. Another reason why they’ve become so popular is the fact that punters don’t have to just accept the odds that they’re offered.

Bookmakers have to put margins into their bets, which can sometimes be as high as 20%. Normal people don’t have to worry about things like margins or overheads, so they can just offer the odds that they think are right. The nature of the market as a peer-to-peer platform means that supply and demand becomes the overriding principle behind the odds that are offered, which benefits the bettor.

No Overheads

overhead costsWe all understand the principle of bookmakers that have high street shops having large overheads, given the need to pay rent or mortgages on properties, staff members a wage and even the likes of an electricity bill. What many might not think about is the fact that bookmakers based online still have large overheads that have to be taken into account. From the people who create the odds through to those maintaining the websites, there’s lots of money that must be paid out all the time.

People that use the exchanges, on the other hand, are, for the most part, just ordinary people. Whilst there might be some people on the exchanges that do it semi-professionally or have even made companies that operate entirely on an exchange, most people that use them don’t have to think about overheads in the same way. Instead, they can just offer their odds and pay out on those that win and collect from people that lose, meaning that they don’t need to worry about their expenses.

Yes, exchanges take a commission on winning bets, but that doesn’t need to be built into the odds offered in the same way that bookmakers need to think about their margins. Consequently, the odds you’ll find on a betting exchange are always more likely to be competitive than with a fixed odds bookmaker because the people offering them don’t need to pay for things in the same way that a bookie does. This allows the value to fall back to the consumer, which is to their benefit.  It also means you won’t be limited just for winning, although if you win a lot you may need to pay premium charges.

Exchanges Find The True Odds

true value

If you were to ask 1,000 people how many jelly babies were inside a glass jar, the average answer would be relatively close to the actual one. This way of thinking can also be applied to betting exchanges, given that you’re asking hundreds, if not thousands, of people what they think they actual odds of an outcome are. This means that they’re able to more accurately predict the real probability of something than an odds trader.

In recent times, it has become common for the industry to look to see what the Betfair Starting Price was for an event, as opposed to the traditional Starting Price decided upon by fixed odds bookmakers. This is because the BSP is a more accurate reflection of the ‘real’ odds of something happening. Bookmakers will always have a solid customer base, but people that want to know the true odds of an event are better off looking on the exchanges.

Commission Makes A Difference

commissionThe one area that betting exchanges struggle to maintain good value over fixed odds bookmakers is when it comes to the commission that they charge. The amount of commission that you’ll pay on a winning bet can be the difference between your bet having better value than with a fixed odds bookmaker or having worse value. It’s really important to remember to take the commission into account when looking at your exchange odds.

This is because the exchange will always seem like better value when you just compare the odds to those offered by a bookie, but when you add in the commission then the price takes a definite hit. It’s not uncommon for an exchange to charge as much as 5% commission, so looking out for one that charges something more like 2% can make a huge difference to your overall profit. Commission can be key in so many ways.

Different Markets Offer Different Value

valueWhilst commission can be one of the key factors in deciding whether or not your bet will offer good value on the exchange over a fixed odds bookmaker, it can actually be the market that you’re betting on that makes the biggest difference. In essence, the more specific and targeted the market is, the more likely it is that you’ll find better value on the exchanges than with the traditional bookies.

Let’s imagine, for example, that you’re think of betting on the First Goalscorer in a Premier League match. Depending on the player that you’re thinking of betting on, a bookmaker might offer you decimal odds of, say, 6.5 compared to 9.4 offered by an exchange. When you realise that that includes the change’s commission, you can suddenly see why they offer better value than their fixed odds competitors.

But Why?

Question Mark Problem Solving ThinkingThe question of why still remains, of course. The answer comes in the fact that bookmakers fear something unlikely happening, whereas betting exchanges are more accepting of that. Bookies have been punished too many times in the past to allow punters to get real value on markets that are unlikely to happen but still might, whereas the exchange market doesn’t care about such things.

Bettors that use the exchange know that if they don’t offer what is considered to be fair value on an outcome then nobody will take them up on their bets, whereas fixed odds bookmakers are aware that people looking to place bets with them have little choice but to accept the odds offered. Bookies also know that betting on the exchange seems complicated to many, so there will always be a market there for them to exploit.