A betting exchange is a facility that allows peer to peer betting, ie customers bet against each other not against Betfair themselves. Bets can be bought and sold in much the same way as shares are bought and sold on the stock market.
This opens up a wealth of possibilities for the user which had previously not been possible when using a standard bookmaker. However, many users do not fully realize the difference between Betfair and a bookmaker, or how they can take advantage of this unique method of wagering.
This series of short articles is designed to explain to beginners what Betfair is, the opportunities that it offers them, and how to actually use it. I will also advise how new users can get started risk free, using the Betfair free bet.
In part one, let's look at what a betting exchange actually is, and how it works.
How does Betfair work?
Imagine two friends in a pub who disagree on which team will win a football match and so they decide to have a bet on the outcome. An impartial third party is asked to keep a record of the bet they have made and hold on to their stake money until the result of the match is known.
He will then pay the money to the winner after the match. This benefits both friends as it means that all bet money is offered up front and then the payout to the winner is guaranteed. The friends both agree that whoever wins the bet will pay the interim third party a small commission his services.
The role of that this party is fulfilled by betting exchanges, of which Betfair is the largest, on a much larger scale. Instead of betting just against friends, Betfair users could be betting against any other user anywhere else in the world.
As a Betfair user you will not know who you are betting against, and the other person will not know they are betting against you. All you will both know is that someone out there has a different opinion, the odds and stakes are agreed in advance, and Betfair will pay the winner once the result is confirmed.
Advantages of Betfair
One of the major advantages to the user is that they have the freedom to succeed and make as much money as they like. Traditionally, bookmakers will limit stakes or in extreme cases close accounts of individuals who are, in their opinion, winning too much money. The betting exchanges do not care how much you win, in fact winning is encouraged. This is because it is not their money you are winning - all money comes from other users. The exchange makes its commission who wins, so there will be no penalty for your success.
Getting started risk free with the Betfair free bet
New Betfair users can also take advantage of the Betfair free bet. Under the terms of this introductory offer, Betfair will refund any losses a new user may make on the first market they bet on, up to a certain value. In effect, this allows the user to try out Betfair and learn how to use the exchange without any financial risk. Of course, if the user wins on the first market they get to keep their profits as normal.