Betting is an activity where two parties wager against each other for a chance to win a stake from an event, and it usually involves money.
A bookmaker is traditionally the first place a potential punter seeks to bet. Often a person or an organisation, a bookmaker accepts and pays off bets - from their own money - on sporting and other events based on the odds they provide.
On the other hand, a betting exchange is a free market where users can decide their bets and act as potential bookmakers.
Bookmakers can be traced back to the 1700s when horse racing and dice games were the premier activities to hold contests. Harry Odgen is historically considered the first-ever bookmaker in the world.
Odgen, during his studies, found how some horses would perform better than the actual winner and thus, he came up with specific odds on how each horse would perform.
For the first time, punters would have an opportunity to place a bet tactically rather than just deciding the winner on instinct and who looks best on paper. This meant a customer could back their favourite horse for lesser of the winning amount or take a punt on an underdog that will earn a more profitable reward if it wins.
But, the catch here is that Odgen cleverly created odds that were always in his favour, regardless of the horse race result. This policy has continued with bookmakers like William Hill, Ladbrokes, and Coral to this very day.
Technological advancement in the early 1990s allowed potential punters to learn and understand the concept of betting via multiple mediums. This gave rise to betting exchanges, a platform where customers have a say in odds and more instead of a traditional bookmaker.
From a time when a bookmaker would call the shots while placing bets, punters at a betting exchange are now given the freedom and authority to raise their stakes and also offer odds to someone else, with room for discussion.
Having understood the brief history of the two major betting platforms at present, let us dive into the key differences between bookmakers and betting exchanges.
Fixed odds vs Competitive odds
A bookmaker will have a fixed set of odds for various events. The bookmaker will pay the punter double the odds’ value if one wins.
On the flip side, a betting exchange is just a peer-to-peer betting platform that pits two customers against each other. Since the market is open and has a supply and demand approach, the competitive odds on offer allows punters to win more on a bet.
Margin vs Commission
Bookmakers offer odds at a slightly inflated margin, meaning they provide odds to a potential punter at a rate higher than the market value. This margin, which can be as much as 20 per cent, allows the bookmaker to keep some value generated from the bet placed. If the bookmaker loses a bet, they keep a portion of the waged amount. But if they win, the marginal value will add to the winning money they receive.
On the other hand, betting exchanges act as an intermediary between the two peers engaging in a bet. The platform will take a commission from the winning amount and nothing from the person who loses the bet.
Back and Lay
Back bet is when you are bet on a particular outcome to happen. For example, in an India vs Pakistan cricket match, let’s say you bet on India to win the game. If India wins, you win what’s at stake and vice versa. It is equivalent to traditional betting but here, you bet against another punter in a betting exchange.
Lay bet, in contrast, is placing a wager in favour of an event not happening. A classic example here is a Peru vs Brazil football match. If a customer lays a bet for Brazil to win, it simply means that they want the opposing team to lose the game.
Bookmakers, for one, will offer only back bets to punters given their restrictions for participating customers.
Betting exchanges, on the contrary, allow people to back and lay bets.