Betting Exchanges Give You More Than Just A Low-Margin Wager

Jack Andrews
arbitrage
Exchanges
Tools
October 25, 2022

Betting Exchanges Apps on Phones

As sports betting evolves in the US, so do innovative ways to wager. For the first time, US residents have the ability to wager on sports via fully regulated betting exchanges. The first two highly anticipated betting exchanges opened recently. Already bettors are seeing why betting exchanges can become a valuable part of the betting ecosystem in the US. Let’s explore what betting exchanges are; where they are headed; who they appeal to; why it matters; and how you can benefit from them even if they aren’t available in your state yet.

 

What Is A Sports Betting Exchange?

A betting exchange is a way to bet on sports where the exchange will match two bettors on either side of a bet, rather than one sports bettor betting against a sportsbook. In a sports betting exchange, a one person (a market maker) puts up a bet and an amount of money they are willing to take on at that price. Another person (a market taker) accepts their price and indicates how much of the available liquidity they would like to take. If the market taker wants a better price than the one offered, they can become a market maker themselves and put up an offer. The process repeats itself. It’s a simple volley of bid and ask.

Betting exchanges have existed in other regulated sports betting markets across much of the world. Betfair Exchange, Matchbook, and smarkets are among the more successful entities in the betting exchange space. However, they have not attempted to enter the regulated US market because of one major problematic barrier to entry. The inability to have interstate liquidity pools.

As you know, sports betting is restricted to the confines of each individual regulated state. There’s been no way to overcome The Wire Act and operate across state lines. Combine that with state regulatory bodies who can be skittish about where money is coming from and flowing to in exchanges, and you have a recipe for an innovation that is very hard to get off the ground.

Betting Exchanges vs. Traditional Sportsbooks

Deep Discount on PriceThere is one obvious benefit of a betting exchange – betting exchanges foster lower-margins for consumers. There is no longer a sportsbook operator looking to profit from the sports bettors. The other side of the wager is matched by another betting entity. The exchange operator simply takes a commission. So far in the US, it is typically 2% of wins. So instead of laying $110 to win $100, you are betting $100 to win $98. In a market with decent liquidity on both sides, this can result in dropping the theoretical house edge from 4.55% to 1%. It’s like getting -102 when the rest of the world bets at -110.

An informed sports bettor immediately sees the value that a betting exchange can provide. Less margin means you lose less when your wager loses. Sites like Unabated preach that the single sharpest thing you can do is to shop for the best possible line. A liquid sports betting exchange provides a chance to always have the best possible line.

 

What Betting Exchanges Are Regulated In The US?

Betting exchanges currently have paths to operate in New Jersey, Colorado, Louisiana, and Indiana. So far, they have only reached market New Jersey. The first platform to do so, and proudly displayed as such at the top of their site, was Prophet Exchange. Following close behind is Sporttrade. You might think it’s odd to choose to operate within New Jersey. The state has a crowded sportsbook market with over 25 different brands, there’s no way two betting exchanges can coexist.

However, these are two very different approaches to betting exchanges. They both have the potential to grow the market by expanding verticals rather than cannibalizing existing traffic. Additionally, New Jersey is a deeper market than the 9 million residents indicate. There is a lot of financial trading centered in the Jersey City area, and betting exchanges appeal to that sector more than sportsbooks ever have. The potential for betting exchanges to take off in the Garden State should not be ignored.

 

Prophet Exchange

Brief Overview of Prophet Exchange

Prophet Exchange Bet SelectionProphet Exchange distinguishes itself by offering vig-free markets for bettors. Instead of having the house vigorish (the -110 pricing) create the straddle, they let the pointspread or the total create the straddle. For instance, you’re offered Under 51.5 or Over 52 at even money (+100) on either side. After potential commission on your win, it is essentially -102. By comparison, the cheapest price at any mainstream US book on those lines is Under 51.5 -106 at FanDuel and Over 52 -107 at PointsBet.

If you want to bet the moneyline, where you can be a bit more exact in your pricing, you can grab -124 on Buffalo or +120 on LA. That very narrow spread between prices creates a minimal overround in the market, which is great for bettors. At the time of this writing, the vig-free Unabated Line on that game is Buffalo -123 and LA +123. You’re betting into a market with razor-thin margins.

Even if the distance between those two price offerings was greater, you could play the role of the bookmaker by offering up better prices on both sides and look to arbitrage a profit. At Prophet Exchange, you only pay commission of 2% on the net win. So taking this approach is not overly dissipated by the commission.

If you’re confused, don’t worry. Getting used to exchanges and thinking in terms of what line you want others to bet against you will become more second nature the more you use it. Typically, moneyline markets on Prophet Exchange have averaged a 2-3% overround. As popularity increases, this overround straddle will decrease. This is great for a savvy bettor.

 

 

Sporttrade Takes A Different Approach

Sporttrade market screenSporttrade front pageSporttrade is looking to capitalize on a potentially untapped vertical of bettor which comes at sports betting from the financial trading world. They have decided to make their app look and feel very similar to how a stock trading app might feel. They’ve opted to eschew the standard US odds pricing in favor of implied probability pricing. For many sports bettors, this may seem initially off-putting, but remember, they’re appealing to a different type of bettor.

Essentially, they’re selling contracts which settle at 100 if it wins, and 0 if it loses. The price also equals the implied probability of the wager. Buy something at 60 indicates that it has an implied probability of winning of 60%. It also means that the amount you win when it settles is 100 – 60 = 40. You’re betting 60 to win 40. It’s the same as -150, where you might say you’re betting 150 to win 100. However, if you’ve never dealt with US odds before, this 60 = 60% might seem a lot more intuitive.

The Sporttrade app feels like you’re day-trading. There are lines posted both pregame and in-game and Sporttrade encourages trading in and out of positions. Sporttrade takes 2% of the profit on a winning contract as their commission. Most markets on Sporttrade have a small straddle in the form of a bid/ask price. For instance, you can buy Buffalo at 56 or you can buy LA at 45.5. That’s the same as Buffalo -127 and LA +120. You can watch the price/probability of your investment rise and fall as the game plays and there is always some liquidity for you to sell part or all of your investment during the game.

We will explore both of these exchanges in-depth in future articles. They both represent unique experiences and opportunities for savvy bettors.

 

Are Betting Exchanges Good For Bettors?

It would seem based on everything laid out so far that betting exchanges are the perfect solution for bettors. Cut out the operators and give bettors a low-margin alternative. What’s not to like?

The potential downside for bettors is that betting exchanges sharpen the overall market via price discovery. That bid/ask volley described creates an added dimension of the typical price discovery process. Instead of being a one-sided market making process with a sportsbook putting up new offers via trial and error, it is a two-sided market. Theoretically, it speeds efficiency.

Other sportsbooks could begin to follow the pricing at the betting exchanges and use them to sharpen their own prices. No need to take sharp wagers to shape their line. This increased efficiency in the market will hurt bettors in the long run, but it is also an inevitable part of market evolution. There are often double-edged swords in any market. Exchanges will become one.

 

Can Betting Exchanges Generate Enough Liquidity To Be Attractive?

The 800-pound gorilla in the room is the question of liquidity. The exchanges being limited to intrastate causes them to innately struggle with the amount of money that will flow through the exchange. That will keep them from appealing to a bigger audience. As you can see from the screenshots in this article, triple-digit liquidity in markets may cause some to scoff.

However, keep in mind that market makers control the velocity of their price discovery by controlling their exposure. In the same way that a sportsbook keeps limits low when a line opens and then raises limits when there is more confidence, an exchange market maker acts the same way. A market is an evolving dynamic over the course of a wager. It will ebb and flow. Additionally, both of the exchanges listed in this article have contracted with professional market makers to provide liquidity in their betting markets.

 

No Limits On Bettors

No Limits on Bettors in ExchangesHowever, there is another huge benefit that offsets the price efficiency greatly. Beyond a lower margin, exchanges guarantee that you won’t be limited for winning. Exchanges operate in a double-blind configuration. The market taker doesn’t know the identity of who offered the wager, and the market maker doesn’t know the identity of who accepted it. As such, neither side can choose the skill level of their opponent. For a change, the playing field is finally leveled. The only practical limit is the amount of liquidity offered in a market and how efficient the market movement is on the exchange.

Betting exchanges also tend to focus on just main markets and standard wagers like sides and totals. The current sportsbook betting scene is rich with derivatives and props. As you know, Unabated definitely helps you take advantage of these types of wagers. Exchanges tend to lag behind traditional sportsbooks in terms of breadth of their markets. Eventually, those types of wagers can find great success in an exchange environment. They just need to reach a critical mass of liquidity to be worth it to both the potential market maker and market taker.

 

How To Get An Edge On A Betting Exchange

If you haven’t been able to tell, at Unabated we’re bullish about the prospects betting exchanges bring to the US market. We believe they will be a beneficial component to the ecosystem of betting. They present another avenue for a sharp bettor to profit, both directly and indirectly.

Directly, bettors benefit from both the low margin pricing as well as the freedom from account limiting. There’s no need to worry if betting into this line will shorten the lifespan of an account. Be as aggressive as you want to be. The market will provide the discipline to reward those who succeed and punish those who fail.

If you are a bettor who likes to hedge many of their wagers, perhaps to play bonuses and promotions at other sportsbook. Exchanges will always offer you some of the best hedging prices available. If you are a bettor who grinds out a profit via Top Down method, exchanges will often offer the best price during sudden moves in the market.

 

Getting The Edge Out Of State

However, even if you don’t reside in a state with legal betting exchanges, you can still benefit from products such as Prophet Exchange and Sporttrade. They provide tremendous signal about how a market is moving. That price discovery cuts both ways. You can use the information to guide your betting. It’s not just about the actual bets available, but the sentiment behind the bet. Let’s re-visit this snapshot of the Bills/Rams game.

Prophet Exchange Bet Selection

There is a lot more money available for taking on the Rams moneyline and on the Under 51.5. That means there is definite sentiment behind the other side of those available. Significantly more money wants to be on Buffalo. Significantly more money wants to be on Over 51.5. Is the liquidity on this exchange in the first week of their operation significant enough to provide a signal of market momentum? That’s for you to decide. Either way it will only improve.

This form of market analysis, reading the order book, is how a lot of financial firms have created profit in equity exchanges for decades. It’s something you can’t do at a traditional sportsbook. It provides a new world of information for savvy bettors.

 

How Unabated Will Soon Help You Solve Betting Exchanges

We’re proud to announce that Unabated will soon be offering real-time information from both Sporttrade and Prophet Exchange. Rather than sitting on their respective apps, you’ll be able to leverage the real-time power of our odds screen to see what is being offered. As with other sportsbook lines on our odds screen, Premium Subscribers will be able to leverage the power of our suite of tools to quantify your edge. Use our Alternate Lines tool to list the perfect runline offer to give you an edge on Prophet Exchange’s MLB markets. Use our in-game betting tools to both buy and sell positions during the course of a game on Sporttrade.

That’s not all. We have other exciting innovations related to how we will display information from the exchanges. We believe it is going to change the way you look at odds screens and leverage the information we provide. More information coming soon about that exciting development.

We’re entering an exciting new world of sports betting innovation in the US, and Unabated is going to be your betting partner to help you get the edge wherever you can.