Betting Exchanges have emerged in the last 10 years to rival traditional bookmakers - they offer consistently higher odds in many markets.
The principle is that you bet against other punters using the exchange. This allows you to place both back and lay bets - with lay bets you are betting against your selection. If your chosen team or horse fails to win, you get to keep the stake, if not, your liability depends on the odds you offered. Lay betting means you can lock in your profit or cut your losses, even before the match or race has started.
Betfair is the largest and best established exchange - an account at BF is an essential tool for bonus betting.
Exchanges profit from taking a small commission on your profits - normally 5%. If you are a regular punter or you place high stakes bets, you can earn points at Betfair which give you a reduction in commission.
There are quite a few people making good profits from trading the odds at Betfair and other exchanges. Locking in a profit from differences in odds is known as arbitrage - 'arbers' spend their time looking for these guaranteed profits. Professionals use complex software to make bets auotmatically and virtually instantly, so it isn't easy to find 'arbs' directly on a market, but there are still many opportunities to exploit differences between bookies and exchanges.
The big advantage for the average punter is the odds available - they are often 20% higher than bookies. Exchanges are particularly useful for those using betting systems or laying off their bonus bets.