Bet exchange

A bet exchange or p2p (player to player) exchange is a fairly recent Internet phenomenon, and is used to describe a web site acting as a broker between parties for the placement of bets (gambling, in other words). The concept is similar to that of a stock exchange or a currency exchange, where in this case the commodity being traded is a bet, rather than a stock or currency.

The UK bet exchange Betfair is one of many successful implementations of the idea. The sites usually make money by charging a commission which is calculated as a percentage of net winnings. Losers do not pay anything to use the exchanges.

Gamblers whose betting activities have traditionally been restricted by bookmakers (normally for winning too much money) have found these sites a boon since they are now able to place bets of unrestricted size, providing always of course that there is someone available to match them. Prices offered often tend to be better than bookmakers despite the commission charged.

These exchanges also offer the oppurtunity to lay outcomes, which is to back that a particular participant in an event will lose. This is the position bookmakers take when offering a bet for somebody to back that the participant will win.

For example, if I think Team A will win a competition, I may wish to back that selection. A bookmaker will lay that selection. We will agree the backer's stake and the odds. If the team loses, the layer or bookmaker keeps the backer's stake. If the team wins, the layer will pay the backer winnings based on the odds agreed.

The fact that gamblers can now lay outcomes on the exchanges has caused tremendous criticism from traditional bookmakers with much of the anger coming from the UK's "Big Three" - Coral, Ladbrokes and William Hill. These firms argue that granting who they consider to be anonymous punters the ability to bet that an outcome will not happen is causing corruption in sports such as horse racing (since it is much easier to ensure a horse will lose a race, the bookmakers reason). Exchanges such as Betfair counter that while corruption is possible on any gambling platform, the bookies' arguments are motivated not by concern for the integrity of sport but by commercial interests. Exchanges also assert that they are well aware of who their customers are and Betfair in particular has noted that they have signed numerous agreements with governing bodies of sport including the Jockey Club, with whom they insist they will co-operate with fully if the latter suspects corruption to have taken place.

In the summer of 2004, Betfair provided data to investigators, including the City of London Police which on September 1 lead to 16 arrests on charges related to race fixing. Among those arrested was champion jockey Kieren Fallon, whose case remains before the courts as of this writing.

See also Gambling, Bookmaker, Parimutuel gambling and Spread betting.

Betting exchanges: BETDAQ, Betfair, iBetX, Redbet,