I’ll not go in to too much detail here, but we need to look at things from the bookmakers point of view first. Bookmakers make their profit by taking more in bets than they pay out.
A perfect market would have a value of 100%, that means that the value of bets place would equal that of bets paid out. Not much good for a bookmaker as they wouldn’t make any money. So a bookmaker will make a book with a value greater than 100% so they take more than they pay out. Typically a bookmakers book will be 110% – 125%, i.e. they payout £100 for every £110-£125 taken in bets, so make a profit. If a book had a value of less than 100%, it would be possible to back every selection to guarantee a win regardless of the outcome.
With a betting exchange, we are betting against other people. The betting exchange matches peoples bets and eliminates the bookmaker so comes closer to forming a perfect market. Obviously, the betting exchange does need to make money still, so will take a commission from your winnings, typically 5%. Note this is on your winnings only, so if you back a selection at 1.20, your return will actually be 1.19 after commission. If you lose, you don’t pay commission.
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