Betting exchanges were introduced in 2000. Initially, concerns were raised about their affecting the integrity of racing due to them allowing bets on losing horses. These concerns have now been addressed with safeguards in place to monitor irregular patterns of betting. Due to the competitive prices offered, they have now become a popular way of betting. Major players involved in the great betting exchange revolution are BETFAIR, BETDAQ and WORLD BET EXCHANGE (WBX).

Betting exchanges set themselves up as agents for people who wish to bet against each other on the outcome of given events. They make their profit by charging a commission for the service. An example of the type of bet you can make on an exchange is as follows. If you think the favourite in the first race at Carlisle will win, and some other person thinks it will lose. You can bet against each other on the betting exchange. You each bet £50. The horse wins and you collect £100. The Horse loses and your friend collects £100. The bet is made at evens. A betting exchange finds other people to bet against and takes a small cut from the proceedings.

If using a betting exchange is new to you, start out with small stakes until you get used to the concept. Don't forget that lay bets are the opposite proposition to back bets. With back bets you lose just your stake if your horse or tam loses but with lay bets you pay out the winnings if the horse or team wins. Take particular care with laying bets as you can easily lose high multiples of stakes, particularly if you start laying all the horses in a race. Although you are acting like a bookmaker, you haven't got the bookmakers 17 per cent guaranteed profit built into the prices. Online bookies do go bust from time to time, leaving the punters unpaid. So keep only the minimum that you need to bet in the internet account and clear out any winnings as soon as possible. If your exchange does go bust, then your losses will be minimized. However BETFAIR is an established online betting exchange that we can recommend.

Hedging a bet is making an additional bet to guarantee a profit. Because a betting exchange allows you to back or lay, you are able to take advantage of price changes and ensure you make a profit regardless of the outcome of a race or match. Suppose you have bet on a horse to win £100 at 19/1 and its price drops down to 7/1. If you then lay £250 at 7/1, you will make a profit of £150 (less commission) regardless of whether the horse wins or loses. You can also hedge just a portion of your bet so that in a losing situation you get your stake back but in a winning situation you are quids in.