What’s The Difference Between Betting Exchanges Versus Sportsbooks?

Although the traditional model of a sportsbook is what dominates the North American market, betting exchanges are quite popular over in the United Kingdom. They have slowly made their way to our shores and a number of bettors are taking a closer look at them. The model is a little bit different than regular sportsbooks as the two have their pros and cons. Since most are familiar with the traditional books, let’s examine betting exchanges and contrast them to see what the main differences are.

What Are Betting Exchanges?

A betting exchange is simply an open marketplace. The platform itself connects bettors who want to wager on each side of a game. In a traditional sportsbook, bettors are playing against the house. When you login to your sportsbook account at BetMGM, DraftKings or FanDuel, you can choose whatever game you like and bet either side. Want to bet over in the Chicago Bulls game? No problem. Or if you want to go under or play a same-game parlay or dive into props, the world is your oyster. Every single one of those bets is you against the house. And that’s why they charge the juice – their commission – because they’re willing to take the other side of whatever you want to bet.

With exchanges, the difference is that they’ll pair you with another player. If the Green Bay Packers are playing the Dallas Cowboys, bettors at the exchange will want to get in on each side. As the bets on one side come in, they’re paired with bettors who want to take the other side. Think of it kind of like buying or selling a stock: you don’t buy or sell to the house or against the house, you buy and sell from other people. That’s similar to what’s happening at a betting exchange.

Lower Juice, Better Odds With Betting Exchanges?

One of the major selling points at a betting exchange is that they can offer better lines in some cases. The reasoning is quite simple: in a traditional book, they need to make their margins because they’re taking on risk. That’s how the business operates. With an exchange, they simply pair up the customers and take a rake on the handle. It’s not so different from Texas Hold’em Poker where players go against each other and not the house, but the house still takes a commission for hosting the game. That being the case, the exchange can have less juice on the odds, which is better for the player. Whether you’re betting the favorite or the dog, you should – in theory – get better lines at an exchange. You can even have scenarios where bettors offer up their own odds to see who’ll bite. It’s just like with a stock price: someone might want to sell an Apple share at $100 and somebody might try to sell it at $97. It all just depends on who is interested to buy. In the end, though, if there’s enough liquidity in the market, you can get better prices on the odds.

Exchanges Can Lack Liquidity

Following up on that last section, the caveat of liquidity is a big one. Remember, you’re no longer betting against the house, so you can’t simply peruse the menu and choose whatever you feel like betting. Now you actually have to double-check the liquidity and see if a bet is available to you or not.

One big challenge for exchanges is getting started. When they start building from the ground up, there are going to be lots of times when bettors come in and are disappointed that they can’t bet whatever they want. Sure, in the long run, if an exchange becomes popular and is run well, it’ll likely have enough liquidity to make everyone happy. There’s a point where the customer base shifts from a group of early adopters to mass adoption, and from there on, the exchange can do quite well. But what about all of the time before that? Do you really want to be investing your time only to find out you can’t place the bets you want? Most bettors would rather avoid that headache.

And even when an exchange is big, it will still have some liquidity shortcomings. There might be enough liquidity on a line for bettors who want to get down $50 or $500, but what about a high roller? Can they hit a side for $50 K or will it only accept part of the bet? That could be a real sour not for those looking to bet big.

Another issue with liquidity that tends to crop up is the smaller markets. Sure, the Cowboys-Packers moneyline has a ton of money on it but what about something like an obscure basketball player to have over 1.5 steals and rebounds combined? Every major North American sportsbook will take that bet but you might have issues playing that at an exchange. That’s a pain point that will turn a number of bettors away.

Exchanges Know No Limits

The liquidity issue is a bit of a hurdle for betting exchanges but there’s a flipside to that because traditional sportsbooks have a tendency to limit players. There’s the old-fashioned type of limits, which means having a cap on their lines. Let’s just arbitrarily say some sportsbooks might allow $5,000 on NFL sides and $2,500 on player props. Once you hit the limit on a line, you can call in to see if they’re will to be flexible but otherwise, that’s that. And then there’s the other type of limits, which is when sportsbooks limit certain players. That might because they feel you’re winning too much or taking advantage of lines or only playing promos. Whatever the case, they can limit you at any point if they feel like it.

Whatever you think of this fight or even boxing in general, this is a pretty interesting betting-in-2023 case study. You don’t see exchange liquidity at this level on the Premier League. Pinny limits in excess of 50k. UK firms reporting more bets than heavyweight title contests. pic.twitter.com/8eowwVqZMk

— Nick Goff (@nickgoff79) February 26, 2023

At betting exchanges, though, limits aren’t something you really have to worry about. Of course, we add in the ‘really’ part because we previously spoke about liquidity. In a less-than-ideal world, your limit on each side is going to be whatever the liquidity is there. However, in a perfect world, if the betting exchanges are flush with players and all of the lines are lubricated, you’re free to bet whatever you want. 

The reason there won’t be any limits is because you’re not playing against the house. There’s no risk that’s being put forward by your bet and there’s no “other side” that the book has to balance out. You’re simply going up against other players and if the money is in the pool, that means that you’re able to bet the other side at whatever amount is there.

Not having those limits and not having to worry about sportsbooks cracking down on you can be very important to bettors. It’s especially crucial if you’re bonus hunting and constantly looking for a place to hedge off bets. Exchanges can be great for that and they’ll never judge you. It feels like limits of some sort always come into play with traditional sportsbooks.

Exchanges Don’t Care If You Win

It’s worth emphasizing this point a little more: betting exchanges don’t care whether you win or lose, or what you bet on. This has become an increasingly bigger problem with the North American books as they might limit you if you’re winning too much, betting too much on player props or betting some of their early lines (that are slightly off the rest of the market). If you do enough of these things, they might start to track you, label your account and eventually limit you if you’re winning.

You know what solves the problem of "sharps" being uneconomical for sportsbooks? Betting exchanges.

— Rufus (@RufusPeabody) August 20, 2018

Exchanges don’t engage in this practice whatsoever. You can bet whatever you want and not worry about anyone looking over your shoulder.

No Frills, No Bonuses

One other downside worth mentioning with exchanges is that they tend to be no frills shops. Traditional sportsbooks might have all the bells and whistles when it comes to incentives but exchanges are moderately basic with bonuses.

Traditional shops are incredibly generous with sportsbook promotions as they try to attract your business. That can mean a deposit bonus worth thousands right off the bat. Afterwards, they might have all sorts of reload offers, profit bonuses and risk-free bets and more. Traditional books try to make it exciting for you to come in and bet with them each day. Whether it’s various missions or freebies in the casino or just general boosts related to whatever sports is happening, they’ll keep giving.

Betting exchanges are more on the frugal side because their model is to take a small cut of the total handle. They are merely looking to match up players on each side. They’re not going to be pouring in a lot of marketing money to match your initial deposit with a sweetener up to $1000, or giveaway boatloads of cash along the way. They have thin margins to begin with, so they can’t make that financially feasible. It’s similar to when you shop at budget grocery stores: you go there to get good prices realizing that they’re saving in other areas. It’s something that you have to consider as the amount of money traditional books are giving away these days simply can’t be ignored. You’re probably best off getting the best of both worlds: depositing at each to get the initial and ongoing bonuses, and then capturing some of the better odds at betting exchanges when available.

Conclusion: There’s No Need To Choose

Betting exchanges can be quite useful to the sports betting community but as you can see, there are some clear-cut limitations. The concept of them is great and done right, they can save bettors some money and offer bettors higher limits too. The downside is when there’s a lack of liquidity, it’s not as easy to get your money down on a bet. And while you probably won’t have issues with their main lines, you might have issues with off-the-cuff things like props and same-game parlays. As they continue to evolve, they’ll likely earn more market share and become more valuable to players.

At the end of the day, though, this isn’t an either-or situation. You can bet at sportsbooks and exchanges, and nobody is going to think any less of you. Every sports bettor knows that it’s best to have as many outs as possible and betting exchanges are one more to add to your portfolio.