How World’s Largest Betting Exchange Betfair Works
www.betfair.com is a gambling website that offers their users a betting exchange, sportsbook, casino, poker room and other forms of betting from a single account. What makes them famous is their betting exchange. This is the topic of this article. I will explain how Betfair works for exchange betting.
Founded in 2000, Betfair pioneered the exchange betting concept. Today there are competitors such as Matchbook, Smarkets and Betdaq. Even so, no betting exchange touches Betfair in market share and liquidity. They are the world’s largest betting exchange.
Betfair is the website punters trust for GREAT ODDS. Here you’re wagering not against the house, but rather with other members of the exchange. With the middle man cut out, there is no bookmaker advantage to overcome. Instead you pay a small commission on “net market win”.
In this article I cover in detail how Betfair works. First let me note: joining via the banner to the upper right gets you a risk free bet. This is a semi-exclusive offer not available direct. With this offer covered, I now explain how to use Betfair. I conclude with answers to several frequently asked questions (FAQ).
Basics of How Betfair Works
Many recreational players do not know how to use Betfair. The truth is, once you get the hang of it, it is all rather simple. There are two ways you can wager. The first way is “back” – a wager that a selection will win. The second way is “lay” – a wager that a selection will lose. To “back” another user must “lay, and to “lay” another user must “back”. When this happens the wager is “matched”.
If a wager you attempt is not immediately matched, you have the option of cancelling it. You can also leave it “unmatched” in which case it stays a live offer until it is either cancelled or matched. If this is confusing don’t worry, I’ll explain Betfair in more details using illustrations.
Below is live in-play betting for a One Day International (ODI) cricket match, England and India. At the time, India was the first to bat. The score was 83-3 after 20.3 overs.
Now, let’s say for example purposes, in this match we’re looking to make a wager on India. To do this we have two options. We can “back” India which is a bet they’ll win, or we can “lay” their opponent England which is a bet England will lose. Examining the options: right now there is $17,118 at odds 2.10 available to back India for an instant match. If we wanted to lay England instead we see there is $18,920 available at 1.90 to do this.
Now, to note: 1.90 is the odds we are giving to someone else. To figure out our own odds we would need to use a formula of 1 + ( 1/(ODDS-1) ) (<- remember this formula as you’ll need it often). This plugs in as 1+(1/1.90-1) and solves to 2.111. So, we’re getting a smidgen better making a “lay” wager at 1.90 (giving us 2.111) than making a “back” at 2.110. So here we decide to “lay” England, using a stake of $500.00.
Hedging in NOT –EV at Betfair
A few hours after making this wager, we see the status of this match is as follows:
We’re in great shape, but there are still plenty of overs left. It is of course possible England could make a comeback here. One of the many benefits to exchange betting is the option to cash out at any time. To explore if that’s worth doing, let’s take a look at what the in-play odds were at this point.
Earlier we staked $500 that England would lose the match at effective odds of 2.111. Now it’s possible for us to wager they’ll win the match at 4.1 odds. We can see our guaranteed profit cashing out by using an arb calculator. Enter 2.111 as the original bet, $500 as stake, and 4.1 as the hedge bet. This tells us, if we now “back” England at 4.1 odds for $257.44, we’re guaranteed a profit of $298.06 before commission. This is regardless of which team wins the match.
It is worth noting that making a play like this is an act of cashing out equity. It is not -EV (negative expected value) as conventional wisdom suggests. Due to the nature of how Betfair works, most times their odds reflect true market (no-vig) probabilities. We bet those odds pre-commission. I elaborate on this soon under the header about commission.
How the Betfair Cash Out Feature Works
This article is up to date as of March 2019. It was though first written a decade ago, and edited dozens of times since. What I explained about using an arb calculator is now rarely needed. Since 2012 Betfair has offered a feature called “Cash Out”. I kept the content here that shows how to do this, because not all markets offer the cash out option. Most markets though do offer cash out. Using it is very simple, as explained in the video below.
The video above does fail to mention commission owed on the net profit they are locking in.
How Betfair Commission Works
At Betfair the starting commission rate depends on where you live. 5% commission is now only for UK, Ireland, Italy, Gibraltar and Malta residents. It is 7% in Albania, Armenia, Croatia, Monaco, Serbia, Montenegro, and Slovakia. For all other countries it is now 6.5%.
The starting commission rate reduces as you achieve a higher discount rate. I explain that in a moment, but first let me note – we pay commission only on “net market win”.
In the example given a couple sections up, we wagered $500 at odds 2.111, so, risk $500 to win $555.50. We then wagered $257.44 on the opposite side at odds 4.1 which is risk $257.44 to win $798.06. These bets offset one another. As a UK resident, for individual bets our commission would be either $555.50*0.05=$27.78 or $798.06*0.05=$39.90. But, this isn’t how Betfair works!
To boost live betting trades, Betfair encourages their users to engage in series of “backs” and “lays”. This is buying and selling throughout the match in an attempt to trade for a profit. In the end, they take a 5% cut of any positive result for that market.
In this example, we had bet in such a way that our before commission profit was $298.06 regardless of outcome. This is the amount they will charge us a 5% commission on. Rather than paying a $27.78 or a $39.90 commission we instead pay only $14.90, and we’ll pay even less if we achieve a discount rate.
How Betfair Discount Rate Works
Every 10 pence (£0.10) paid in commission earns you a single Betfair point. As you accumulate points you’ll achieve a discount rate based on the figures shown in the chart to the right*. This discount rate calculates weekly (Sunday at midnight). Once calculated your points balance will reduce by 15%. Betfair calls this weekly decay. You can though prevent weekly decay by using holidays.
Each account starts with a single holiday. A new one is given every 3 months. You can store up to 4-holidays for future use. We can use their calendar to schedule a week long holiday. If we continue to bet during that holiday, we will not earn points. Understand, if you continue to bet the same amount each week, the decay won’t affect you. You’ll reach a point where the points deducted are the ones you’re earning each week.
*Please note: Betfair has a different discount rates for residents of Switzerland, Ukraine, Hungary, Albania, Australia and New Zealand. If you live in one of those countries see their website for details. The chart shown above is the discount rate for residents of all other countries.
Commission and Points Example
- You have net market winnings of €350
- The standard commission rate is 5%.
- Your current discount rate is 26%.
To calculate your commission first take 5% of €350 = €17.5, then deduct 26% (€4.55) to see the commission taken is €12.95.
To calculate your point earnings you’ll need to convert Euros to UK pounds. If the current exchange rate is 1 EUR = 0.8635 GBP – take 12.95*0.8634=£11.18. Your point earnings are 111.8.
Note: it is possible to open a Betfair account in USD, GBP, EUR, DKK, SEK, AUD, HKD or NOK currency. But, points are always earned based on commission paid in UK pound (GBP).
Betfair Premium Charges
A decade ago, in October 2009, Betfair stopped being friendly to ultra-sharp traders. One might suspect with their business model, it doesn’t matter to them who wins or loses. This is because they get their commission regardless. Thinking about it a little deeper, it did matter. They found, out of 3.8 million registered customers, about 500 were making most of the profit. These users traded for constant profit, and withdrew winnings often. This took liquidity off the exchange. This meant less chance recreational players got lucky. Thus, less chance at an enjoyable experience, and continued usage of their exchange.
Betfair thus added their notorious premium charge. This is a tax charged to those who win the most money off the exchange. In 2019, it applies only to users who have wagered at least 250 times. They must be in the profit lifetime. Their lifetime commission paid must be less than 20% of their lifetime profit. If more than 50% of a players lifetime winnings came from a single wager, they are exempt.
Premium Charge Rate
When a player first reaches the premium charge conditions, Betfair sends an email, and shows a popup, explaining this. This is a warning, so to speak. All players have a lifetime allowance of £1,000 against the Premium Charge. So, there is no charge immediately, as Betfair pays the first £1,000.
Premium Charge starts out as the lesser of:
- The difference between 20% of the previous week’s gross profits and the total charges generated during the week; and
- The difference between 20% of gross profits and the total charges generated during the lifetime of the account.
Here is an example:
You have won £15,300 lifetime.
You have paid £1,480 in lifetime commissions.
This week you won £750 and paid £120 commission.
You are thus charged £30 in Premium Charges. (£750*20%)-£120=£30
Remember all players have a £1,000 lifetime Premium Charge allowance. If you have not already used that, you will not pay that £30.
Higher Rate Premium Charge
The Premium Charge is not so bad at it starts out at only 20% and there is a £1,000 allowance. For very large players there is a higher premium that might make using their exchange not worth it. This applies to players with net lifetime profit exceeding £250,000. They must have bet at least 1,000 markets, and paid commission of less than 40% of lifetime profit.
Most meeting the criteria above have their Premium Charge rate increased to 40%. For those with lifetime commission 5-10% of their gross profit, it is 50%. Those having paid less than 5% of their gross profit in commission will have a 60% Premium Charge. Again, they ignore winnings from a single market that exceed 50% of lifetime profit. Betfair claims less than 0.1% of active customers ever have to pay this higher rate premium charge.
Betfair Betting Exchange Compared
The Premium Charge I just explained might turnoff some readers. Understand, it takes a lot of trading, and a lot of profit, before Premium Charge is ever assessed. Only the most successful players have to worry about this and they have made a lot of profit before that became a concern. Let me explain why you should use Betfair.
The majority of online bookmakers charge 1.91 for odds or even bets. This means a 2-way wager where each side has a 50% chance of winning. At European decimal odds of 1.91, $100 staked is a wager of risk $100 to win $91. Thus, 50% of the time the bookmaker is shorting you $9.00 on the payout. That is an average of $4.50 per $100 bet, or 4.5%.
At Betfair, chances are you can bet odds or even at their true odds of 2.00. You then pay 5%, 6.5% or 7% commission (depending on where you live) when you win. Again you’re winning 50% of the time. Thus, you’re paying between 2.5% and 3.5% per $100 wagered. In other words, at Betfair single wagers (as opposed to “back” then “lay” trades – also known as hedges) have a 2.5% to 3.5% advantage to overcome. This is much better than the 4.5% to overcome at traditional bookmakers.
Don’t Forget Discount Rate
Keep in mind, as you wager at Betfair you’ll accumulate points. These help reduce the effective commission rate. This makes their already favourable odds even more favourable. Also, don’t underestimate the fact that Betfair calculates commission only after a market settles using “net market win”. This allows us to hedge our bets, minimising loss, or locking in a win, in a vig free environment. We only pay commission in the times, and on the amounts, we come out ahead. We can’t do the same in an affordable way at a bookmaker due to the vig. So, as you can see, Betfair offers even better value than the 2.5% to 3.5% advantage we start off needing to overcome.
Using Betfair to Minimise a Loss
If you understand how Betfair works, you can use them to minimise loss. There are times when a match isn’t going our way and we are desperate to get out of a wager for a small loss. I had this happen watching a Russian Division 1 football match. 18 minutes into the match the score was nil-nil and the in-play betting odds were:
At this point in the match I loved Alania Vladikavkaz at the current market price so I made a $1000.00 “back” at 1.77. The first $81.00 matched at 1.79. The next $81.00 at 1.78, and the remaining $838 at 1.77. After fiddling with the math I determined my total wager was $1000 at odds 1.772. The excitement had worn off a little by half time. The match was still nil-nil.
In the second half Alania Vladikavkaz had breakaways and several corners. They even had a penalty kick meters outside the box. I thought for sure they were going to score at some point. But, at the 78-minute mark the score was still a bore draw. Panic set in, and I had to look to see if there was a way to limit my potential loss. At this point the betting odds were:
What you can’t see on this screen shot is that there was also $1343 available to “lay” Alania Vladikavkaz at odds 2.10. At this point, I wanted to get off it in a hurry and didn’t have time to mess around with too much math. I calculated – using: 1 + (1/[ODDS-1]) – that to give someone odds 2.02 on a lay, my odds are 1.98. To give someone 2.10 on a lay my odds are 1.91. These average to about 1.945 and in a hurry this is close enough.
Placing my Hedge Bets
My next step was to go to an arb calculator, plug in the odds I got earlier of 1.772 on line 1, and the current odds to lose 1.945 on line 2. I then entered $1000 as stake and clicked submit. Here I see by making a $911.05 lay @ 1.945 I’m able to lock in a guaranteed loss of $139.05 regardless of outcome.
With 12 minutes left in the match, I executed that. At Betfair I took the max amount available for all odds better than 2.10 “lay”, and took what remained of $911.05 total on a 2.10 “lay”. When doing this I selected the option “payout”. This is the max I was willing to “payout” not the “liability” I wished the matching backer to have.
Not that it is worth mentioning, but this match did in fact end in a nil-nil bore draw. I saved a lot money by trading off it before it was too late. The actual loss was $129.22, which was better than the $139.05 I had estimated. So in short I backed off my bet, lost $129.22 instead of $1,000. I don’t owe any commission and I’m happy to have saved $870.78.
What if My Bets Don’t Get Matched?
One disadvantages to how Betfair works is that a wager has to be matched to have an active bet. Although, as seen in several screen shots posted in this review, each selection in a match has three sets of odds. There is a monetary amount below each. This is what other exchange users have already committed to wagering at the reverse odds. In other words, they have an unmatched offer someone else can match. When we bet at these prices, our bet matches theirs and both of us have an active “matched” wager against one another.
If for some reason this doesn’t happen Betfair will give a warning that our wager wasn’t matched. This can happen when someone else wagered a split second before us.
Very easy to find, right on the betting menu, we can see current “unmatched” bets. Here there is an option to cancel. If you’re new, and don’t yet understand how Betfair works, you might not be comfortable leaving “unmatched” bets open. You can click cancel. In other cases you can click the small refresh icon and wait around a bit to see if all or some of that wager ends up “matched”.
At any point you can cancel unmatched bets. You might then choose bet odds showing on the screen. Again those are immediately available for an instant match. If this is at all confusing, don’t worry. Using the banner at the top of this page you can access a risk free bet. This will allow you to practice using Betfair.
What Sports Does Betfair Offer?
Betfair offers betting on all the popular sports from around the world. Football, cricket, and tennis betting are popular with traders. They also offer American Football, Australian Rules, Baseball, Basketball, Bowls, and Boxing. Cycling, Darts, Floorball, Golf, Handball, Ice Hockey, Motor Sport (including Formula 1) are present too. There is Netball, Olympics 2020, Poker, Politics, Rugby League, Rugby Union, Snooker, Volleyball and Winter Sports too. This is along with financial betting and greyhounds. Finally, they are also one the most popular betting sites in the world for horse race betting.
What Countries Does Betfair Service?
Betfair is for the most part an international brand. Their website is available in English, Danish, German, Greek, Spanish, Italian, Portuguese, Russian, and Swedish language. Betfair is unfortunately no longer available in some countries. While the United States was always on their restricted list, several other countries are now also banned. Residents of Belgium, Canada, China, France, Greece, India, Israel, Portugal, and Turkey can no longer play at Betfair.
Note: Betfair also holds and Australian bookmakers license. Aussies can play here but due to legislation they cannot do live in-play betting online. We can bet in-play over the phone. Their sports market website prompts the option to bet in-play over the phone when it turns in-play.
How do I get Paid?
In countries where gambling is acceptable, Skrill, PayPal and Neteller are great withdrawal options. Betfair does offer International Bank Wire which comes in handy for Asian punters. Payments to Asian bank accounts come via a 3rd party processor. The name Betfair won’t appear on you bank statement. Of course those living in Europe can also get payouts via a paper check, or standard bank transfer.
Does Betfair Accept Bitcoin?
As of March 2019, Betfair has not implemented bitcoin as a deposit option. You can however use the e-wallet NETELLER to deposit. NETELLER offers bitcoin as a funding method.
Is Betfair Legit?
Betfair is a very legitimate company. Founded in 2000, Betfair has grown at a rapid pace. They are the world’s largest betting exchange. They hold many gambling licences. This includes ones issued in Australia, Bulgaria, Denmark, Gibraltar, Italy, Malta, Spain, UK and USA (3 states).
Betfair has been a public traded company since 22 October 2010. They were first on the London Stock Exchange as Betfair Group PLC. On 2 February 2016, they merged with Paddy Power to form Paddy Power Betfair PLC. They are a constituent of the FTSE 100 Index, trading as LON: PPB. As of March 2019, their market valuating exceeds £4.3bn. They operate many brands. These include Betfair, Paddy Power, Sportsbet.com.au, TVG, and FanDuel.
As for the brand Betfair itself, this is no longer only a betting exchange. Their online poker site launched in 2004. Casino and bingo launched in 2006. They added traditional fixed odds bookmaking in 2012. Their brands claim to fame is still the betting exchange. They were the pioneers and won many awards and accolades along the way.
Betfair is one only a few companies to have won a Queen Awards more than once. This is the UK’s highest official award for business. Founders Andrew Black and Edward Wray won an Ernst and Young Emerging Entrepreneur of the Year award, early in their careers. Betfair fought hard to offer their exchange globally, taking on courts and governments. They also have information sharing agreements with over 70 sports governing bodies. These include FIFA, UEFA, the British Horseracing Authority and the International Olympic Committee.
Betfair Rated A- at SBS
Betfair has not had any serious complaints in many years. As covered above they are a massive company that is well regulated. It is possible to mount an argument that they deserve an A+ rating. At SBS we rate them A-.
There was once a major issue but it was near a decade ago. In 2010, they ran a happy hour casino promotion that was a huge mistake. An employee’s horrible decision cost them millions of dollars in casino losses. Betfair cited “spirit of the bonus” abuse and recaptured most of the funds. Again, they are almost a new company since that time, pulling off a huge merger and many accusations. Though that still haunts them some, there have been no similar complaints since.