5. Taking Profits

Another great advantage of betting exchanges is the ability to be able to take an early price and close out before the actual event has settled.

You must have been in the situation where maybe you backed a horse for the Grand National at 40-1 ante-post only to see it come into 8-1 on the day yet still not win.  Your brilliance has not been rewarded - until now.

Back then lay!

Because with betting exchanges you can back and lay, you are free to effectively "close your bet" at any time.

For example lets imagine you bet £25 on the horse at 40-1.   Lets call this Bet1.  You are standing to either make a profit of £1,000 or lose £40, nothing in between. 

Now lets imaging that the price of this horse comes into 8-1 after it wins a key trial impressively.  With traditional betting you may feel your chances of winning are improved by the trial win, but the fact that's the horse is now 8-1 doesn't help you at all as it hasn't won the race you've back it for yet.

However with an exchange you can start laying the same horse at 8-1 to take some profit early

The maths of this is a bit complicated, so a few examples of what you might do will help.  The best way to think of it is as two separate bets.

a) Cover Your Stake - Cannot Lose Strategy

Your original stake was £25 so you lay £25 of stakes at 8-1 giving you an exposure of £200.  Call this Bet2.

Your position is

If the Horse wins: Bet1 wins £1000.  Bet2 loses £200.  You win £800

If the Horse loses: Bet1 loses £25.  Bet2 wins £25.  You've broken even.

b) Oppose the Original Bet

You stand to win £1000 if the horse wins so you can safely afford to lay £125 of bets which at 8-1 would give you a payout of £1000.

Your position is:

If the Horse wins: Bet1 wins £1000.  Bet2 loses £1000.  You've broken even.

If the Horse loses: Bet1 loses £25.  Bet2 wins £125.  You've won £100.

c) Same return whether it wins or loses

In practice you can lay any amount you want, even more than your potential returns if you have the funds to cover it.  Sometimes its nice to judge your lay bet so that you win the same whether the horse wins or loses (but it can be quite hard to work this out).  In this example you need

£1000 - 8 x laybet = laybet - 25

So you need to lay 1025/9 or about £114 to win about £89ish whatever the outcome.

Practicalities

Now you've probably realised that you could make the bet on a regular bookmaker and then lay it off on an exchange, which is perfectly true.  However if you didn't make the original bet on the exchange then you will need to deposit the funds to lay the bet (e.g. the £1000).  The net result will be the same, but the ability of the exchange to aggregate your bets to leave the maximum available funds makes this a lot simpler if you made the original bet with them, not least because you can easily see your overall position in terms of how much you stand win or lose if  a particular horse wins.

A couple of sections back we showed a simple "my bets" screen.  This is another example on the 2004 Super Bowl which shows how it can get more complex. 

You can see lots of bets that were opened mainly as speculation that the odds would shorten so we could close for a profit, rather than believing they would win (after all only one team can win).  Some are went well such as the Kansas bet at 17, whose odds went into about 5 after a string of wins, others didn't work such as backing Buffalo at an average of 18.27 (several bets) who after a great start then fell apart. 

It became clear to us that Buffalo weren't going to have as good a season as early form has promised so we ended up closing the bet at a loss by laying most of our potential winnings at odds of almost 110-1.  With a traditional bookmaker bet we'd have just had to write the whole bet off.  With a betting exchange we were able to at least get £12 back on our bet, which will still a big loss from the initial stake of £83 is still better than losing all of it.

Next:  Compare Exchanges on Commission rates