Calculating Hidden Commission of Betting ExchangesCalculating the hidden commission charged by betting exchanges
Unlike the regular bookmakers, betting exchanges charge a certain amount of commission on the winnings, thereby denting the net profit amounts of the winners. This base commission is normally in the vicinity of 5% of the winning amount, but may go up to 6% or 7% in some countries. If you regularly place bets at exchanges such as Betfair, you collect a certain number of points over your betting activity, that discounts this commission, however, these points decay after every week. Furthermore, if you’re really successful, you may find yourself trapped in something known as premium charge, which may eat as much as 60% of your profit!
So, if you come across 1x2 odds of 1.82 for MU to win against Chelsea at Bet365, the same bet may be available at odds of 1.84 at some betting exchange. You may wonder which bet holds better value – Is the 1.84 bet after factoring in the betting exchange’s commission a better deal compared to the one offered by Bet365?
The decimal odds are actually a representation of inversion of probability of a certain event’s happening. For instance, the probability of getting tails when tossing a coin is 0.50 or 50%; the equivalent odds for it are 1 / 0.50 = 2.00. It is also the ratio of your probable return as well as your bid amount. So if you bet £ 100 at odds of 1.84, hoping to pocket £ 184, it would consist of £ 100 as your original bet amount and £ 84 as your profit.
Decimal odds = return / stake
Or put another way
Decimal odds = 1 + (profit / stake)
As explained earlier, betting exchanges normally charge a certain commission on the net profit. It implies that in the example detailed above, although you’ll get back your £ 100 bet untouched, the £ 84 winnings will have the betting exchange commission charge taken off first.
So, if the commission rate of the betting exchanges 5%, in the above scenario, it’ll be taken off from your £ 84 profit, hence, your actual profit would be:
£ 84 x 0.05 = £ 4.2
£ 84 - £ 4.2 = £ 79.8
Therefore, you effectively got odds of 1.798 on your bet, which may be worse than what you could have availed at Bet365 or some other bookmaker.