2. Betfair is like eBay
Most people have heard of eBay nowadays, so we are going to start by using an example of how eBay works to help you better understand the betting exchanges. Like eBay, betting exchanges bring buyers and sellers from across the globe together. Be patient reading this tutorial - some things will be new to you, so you should read them several times, sometimes the answer to your question just wait in the following article. If something is still unclear, please post your questions in the comments below the article.
eBay
eBay is the largest online auction in the world. On eBay people can buy and sell goods in many categories - electronics, clothing, cars, etc. And thanks to a very wide range of goods from sellers from around the world via eBay can buy or sell practically anything. Goods on eBay are usually physical goods.
Everyone knows how it works buying and selling of goods and instinctively how to behave during these activities - when you want to buy something, you want to price as low as possible to save money. But if you want to sell something, you are interested to make money, so you're trying to sell at the highest price.
A completed trade on eBay will be the moment when both seller and buyer agree on a price for the goods and they have an electronic agreement. Once this is completed, the buyer pays the seller. The seller is obliged to send to the buyer the goods & pay eBay a small fee for arranging the transaction.
Betfair
Using Betfair people can buy and sell prices on sports results in many sports - football, tennis, horse racing, etc. And thanks to a very wide range of prices from others from around the world you can buy or sell odds on the outcome of almost any sporting event. As such, goods on Betfair are the odds on the outcome of sporting events.
But what does it mean to sell and buy odds on the outcome of sporting events? Buying and selling of anything is still governed by the same rules - you want to save when shopping, so you want to buy the lowest price. When selling, you are interested in selling at the highest possible price. It will therefore be also the same for buying and selling odds on sporting event - you might want to buy the lowest rate and sell as high as possible.
A trade at Betfair will take place when the two counterparties agree to the exchange rate (price) on the outcome of sporting events and conclude with an electronic agreement. From this point the agreement awaits a particular sporting events results that will decide who wins. (NB We will later learn a technique that locks in a profit irrespective of the result of the game.)
Differences
Every business is different however. When using eBay, you are generally buying or selling a physical product, and the buyer will pay the seller and the seller will send the product to the buyer. When using a betting exchange you trade odds on the outcome of sporting events. The result of the match can not be known before the match ends, so its price does not reflect the cash, but the probability / odds of the particular event occurring.
Trading odds on the outcome of sporting events is the same as trading goods or commodity only with one difference - it is not physical. You need to buy it cheap and sell higher to create a profit. But if you buy expensive and sell for less than you paid, you create a loss.
The odds on a particular outcome of a sporting event can fluctuate due to many reasons, and it’s these fluctuations that allow you to profit from a shift in prices. There is variety of sports every day around the world, and there are many of events, which mean a lot of opportunities for trading on the betting exchange.
