The basic structure of traditional sports betting has always been a gamble between the player and the bookmaker, where the bookmaker sets the odds and achieves long-term profits through odds extraction. Under the traditional model, bettors, whether they win or lose, are passively accepting the price. Betting Exchange is a subversion of this structure.
The betting exchange was born after the internet matchmaking technology matured, to bypass the traditional betting companies' monopoly on setting odds and extracting juice. It was first implemented by Andrew Black's Betfair in a peer-to-peer sports betting model.
It directly eliminates the role of the bookmaker, allowing users in the exchange to either support a certain outcome occurring or bet against it happening. In practice: ➡️ Players quote different buying and selling prices (odds) for the same result; when opposing players agree on the same odds, the trade is matched. The betting prices then fluctuate continuously with the flow of funds and changes in information.
🔴 Betting Exchange VS Prediction Markets
On the surface, betting exchanges and prediction markets are very similar, both revolving around trading outcomes. However, there are still differences, mainly reflected on three levels.
First is the type of events. Betting exchanges are almost entirely centered around sports events, while prediction markets cover a wide range, including sports, politics, economics, policies, and social events.
Second is the way contracts are expressed. Betting exchanges use the traditional betting odds system, while prediction markets usually use binary contracts, where prices directly represent the market's perceived probability of an event occurring. This makes prediction markets more akin to financial derivatives in form.
The most crucial difference is actually in regulatory affiliation. Betting exchanges are explicitly gambling products, subject to gambling regulation; whereas the current positioning of prediction markets is still somewhat vague, whether they are gambling, financial, or commodity derivatives varies across different markets.
🔴 Betting Exchange VS Traditional Sports Betting
The biggest difference between betting exchanges and traditional sports betting lies in the pricing of odds and who bears the risk.
Traditional sports betting odds are set centrally by the betting companies, where the bookmaker naturally has information, pricing, and capital advantages, thus players who profit on a large scale often face limits or even account closures.
However, betting exchanges completely eliminate the "bookmaker" role. The platform does not take a stance on match outcomes nor bear the risk of winning or losing, only responsible for matching users with opposing views to complete transactions.
Odds are naturally formed by market supply and demand, and the platform extracts a fixed percentage of commission when players generate net profits. Players directly gamble against another player who holds a different view on the same event, with the platform only providing neutral trading infrastructure.
🏆 Why are betting exchanges gaining attention again?
Betting exchanges are not a new concept, but their "resurgence" in the past two years is not accidental.
On one hand, the rise of prediction markets has completed user education. More and more ordinary users are beginning to accept the mindset of betting on "probabilities."
On the other hand, more and more seasoned players are also realizing the hidden costs in odds. When users grow into "long-term return" type players, the structural advantages of exchanges, such as low commissions and no juice, become particularly important.
For players who just want to casually bet on matches, traditional sports betting is still the simplest choice; but for those who start to seriously calculate probabilities, costs, and returns, betting exchanges, compared to the complexity of prediction markets, will be an inevitable path.
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