Before becoming a sports trader you’ll need to understand the two bet types available on the betting exchange: “back” and “lay” bets. Understanding the difference between the two and how they can be utilised to secure a profit is essential for anyone who wants to make money from sports trading.
Article Contents
Back Bets
A “back bet” is a type of bet where a trader wagers for a particular outcome of an event, such as a particular team winning a football match. If the outcome they have bet on does occur, the trader will win their bet.
One of the key features of back bets is that the amount of money that a trader can lose is limited to the amount of their stake. Here’s the formula for the potential profit of a back bet:
Potential Profit = (Backer's Stake x (Back odds - 1)
For example, if a trader places a back bet of £100 on Team A to win a football match and Team A loses, the trader will lose their bet of £100, but they will not be liable for any additional losses beyond that amount. If they win, they’ll make a profit of £900.
Back bets are often used by traders who are confident in the outcome of an event and believe that the odds offered by the exchange represent good value. If the outcome they have bet on does occur, they will receive a payout based on the odds offered at the time of their bet.
Traders may choose to place a back bet early to take advantage of favourable odds before the market adjusts, or they may wait until closer to the event to see how the odds develop before placing their bet.
Learn more on calculating the profit and return of a decimal odds bet
Lay Bets
A “lay bet” is a type of bet where a trader wagers against a particular outcome of an event. If the outcome does not win, and the trader was correct, the trader will win their bet.
For example, if a trader places a lay bet against Team A winning a football match, they are betting that Team A will either lose or draw. If Team A does not win the match, the trader will win their bet.
One of the key differences between lay bets and back bets is that lay bets have a liability that is not limited to the amount of their stake, but to a potential payout that may need to be credited to other traders if their lay bet is unsuccessful. Here’s the formula for liability:
Liability = (Backers stake x (Lay odds – 1))
For example, if a trader places a lay bet of £100 against Team A winning a football match at odds of 10.0, the trader could potentially lose £900 if Team A wins the match. However, if Team A loses the game, the trader win the backer’s stake of £100.
Lay bets are often used by traders who believe that the odds offered by the exchange for a particular outcome are too low.
It’s worth noting that lay bets can also be used for hedging purposes. For example, if a trader has placed a back bet on Team A to win a football match but is no longer confident in that outcome, they can place a lay bet against Team A to reduce their potential losses.
Learn more about Lay bets and Liability
The Difference In The Back/Lay Price
On a betting exchange, back and lay odds are determined by the supply and demand of the market.
The back odds represent the odds at which traders can bet on a particular outcome, while the lay odds represent the odds at which traders can accept bets against that outcome.
For example, let’s say there is a football match between Team A and Team B. The betting exchange could offer 2.0 Back odds for Team A to win and 2.1 Lay odds for Team A to win. In this case, traders who place back bets on Team A to win will receive a payout of £2 for every £1 they bet if Team A wins, while traders who place lay bets against Team A to win will have to pay out £2.1 for every £1 they bet if Team A wins. Backers fulfil the bets of layers, and vice versa.
In this example case, traders who place back bets on the betting exchange can choose to accept the going odds of 2.0, or alternatively request a higher price such as 2.5. However in requesting a higher price the bet will be queued until a lay trader increases their lay odds, and thereby their liability, to match the request. There’s no guarantee this will happen, so some bets are left unmatched (or only partially matched).
Traders who place lay bets on a betting exchange can offer equal or higher odds than the current back price (i.e. 2.0 or above) to attract bets from other traders. If a layer offers a higher price, they are effectively offering a better deal to backers, which means taking on more risk and facing a higher liability. Conversely, if a layer offers lower lay odds, they are offering a worse deal to backers, which means they are taking on less risk with a lower potential liability. By offering a low price layers might not be matched (or only partially matched) on their bets.
In setting a price, lay bettors act as the bookmaker, accepting bets from backers who typically take a more optimistic view of an outcome.
Basic Principles Of Profitable Trading
There are two basic principles used in sports trading on betting exchanges: “Back high, lay low” and “lay low ,back high”. These principles involve backing and laying bets at different prices to generate a guaranteed profit.
1. Back High, Lay Low
The “back high lay low” principle means backing a selection at a high price and then laying it at a lower price.
For example, if you think a horse is going to win a race and its odds are 5.0, you could place a back bet at those odds. Then, if the odds of that horse shorten to 4.0, you could place a lay bet to lock in a profit, regardless of the outcome of the race.
This fundamental sports trading strategy is based on the idea that if the odds of a selection decrease, the selection is now considered more likely to win than initially thought; so you have the ability to offset your risk at a profit.
2. Lay Low, Back High
On the other hand, the “lay low back high” principle means laying a selection at a low price and then backing it at a higher price.
For example, if you think a football team is going to lose a match and their odds are 2.0, you could place a lay bet at those odds. Then, if the odds of that team drift out to 3.0, you could place a back bet to lock in a profit, regardless of the outcome of the match.
This strategy is based on the idea that if the odds of a selection increase, it is less likely to win than initially thought; so you have the ability to offset all risk at a profit.
Both principles involve taking advantage of changes in the odds of a selection to generate a profit. The following sections will explain precisely how to calculate the profit and stakes required to secure a risk free trade using these two basic sports trading principles.
Back High, Lay Low
To illustrate the “back high, lay low” principle I’m going to show you three ways of ensuring that you make a risk-free trade whenever the odds you back at are greater than those you later lay at.
Let’s suppose that you backed a tennis player with a £100 stake to win a match at odds of 2.5, then the odds shortened to 2.2. There is more than one way to secure a risk free bet from this situation.
1. Under Lay
An under lay will ensure that a profit is made when the tennis player wins, and that a break-even result is produced when the tennis player loses.
Stake Calculation Formula
For the under lay bet, there is no formula required. The back and lay stake are placed at the same value.
Outcome 1: If the tennis player wins
- Back bet profit: (£100 x 2.5) – £100 = +£150
- Lay bet loss (liability): (£100 x (2.2 – 1)) = -£120
- Total profit: +£150 – £120 = +£30
Outcome 2: If the tennis player loses
- Back bet loss: -£100
- Lay bet profit: +£100
- Total profit: £0
So if the tennis player wins, the trade will make a profit of £30, and if the player loses, it will break even. The exact same calculations exist if the trader lays at 2.2 before backing at 2.5, rather than backing before laying; it makes no difference.
This situation means that the trader cannot lose — but the profit is completely skewed in favour of the tennis player winning. The same odds can be bet on to ensure that the profit is spread equally among both potential outcomes, as follows.
2. Standard Match
A Standard Match will ensure that an equal profit is made whether the tennis player wins or loses. This requires an alteration to the lay stake from the previous example (1).
Stake Calculation Formula
Lay Stake = Back Stake + ((Lay Bet Liability + Back Bet Profit ) / Lay odds))
In this example case the variables are as follows:
- Back Stake = £100
- Lay Bet Liability = -£120
- Back Bet Profit = +£150
- Lay odds = 2.2
Lay Stake = £100 + ((-£120 + £150) / 2.2) = £100 + (£30 / 2.2) = £113.64
Outcome 1: If the tennis player wins
- Back bet profit: (£100 x 2.5) – £100 = +£150
- Lay bet loss (liability): (£113.64 x (2.2-1)) = -£136.37
- Total profit: +£150 – £120 = +£13.63
Outcome 2: If the tennis player loses
- Back bet loss: -£100
- Lay bet profit: +£113.64
- Total profit: +£13.64
As you can see, both potential outcomes of the tennis match produces the same profit, 1 pence aside.
3. Over Lay
An over lay will ensure that a profit is made when the tennis player loses, and that a break-even result is produced if the tennis player wins. This requires an alteration to the lay stake from the first example.
Stake Calculation Formula
Lay Stake = (Back Bet Profit / (Lay Bet Liability x -1)) x Back Stake
In this example case the variables are as follows:
- Back Bet Profit = +£150
- Lay Bet Liability = -£120
- Back Stake = £100
Lay Stake = (£150 / (-£120 x -1)) x £100 = £125
Outcome 1: If the tennis player wins
- Back bet profit: (£100 x 2.5) – £100 = +£150
- Lay bet loss (liability): (£125 x (2.2 – 1)) = -£150
- Total profit: +£150 – £120 = £0
Outcome 2: If the tennis player loses
- Back bet loss: -£100
- Lay bet profit: +£125
- Total profit: £25
This situation means that the trader cannot lose — but the profit is completely skewed in favour of the tennis player losing.
Lay Low, Back High
To illustrate the “lay low, back high” principle I’m going to show you three ways of ensuring that you make a risk-free trade whenever the odds you lay at are less than those you later back at.
Let’s suppose that you layed a tennis player with a £100 stake to win a match at odds of 2.2, then the odds drifted to 2.5. This is the reverse order of the “back high, lay low” example from the previous section, and there is more than one way to secure a risk free bet from this situation.
1. Under Lay
An under lay will ensure that a profit is made when the tennis player wins, and that a break-even result is produced when the tennis player loses.
Stake Calculation Formula
For the under lay bet, there is no formula required. The back and lay stake are placed at the same value.
Outcome 1: If the tennis player wins
- Back bet profit: (£100 x 2.5) – £100 = +£150
- Lay bet loss (liability): (£100 x (2.2 – 1)) = -£120
- Total profit: +£150 – £120 = +£30
Outcome 2: If the tennis player loses
- Back bet loss: -£100
- Lay bet profit: +£100
- Total profit: £0
The trader cannot lose — but the profit is completely skewed in favour of the tennis player winning. It makes no difference what order the back/lay bets are placed in.
2. Standard Match
A Standard Match will ensure that an equal profit is made whether the tennis player wins or loses. This requires an alteration to the back stake from the previous example (1).
Stake Calculation Formula
Back Stake = Lay Stake - ((Lay Bet Liability + Back Bet Profit ) / Back odds))
In this example case the variables are as follows:
- Lay Stake = £100
- Lay Bet Liability = -£120
- Back Bet Profit = £150
- Back odds = 2.5
Back Stake = £100 – ((-£120 + £150) / 2.5) = £100 – £12 = £88
Outcome 1: If the tennis player wins
- Back bet profit: (£88 x 2.5) – £88 = +£132
- Lay bet loss (liability): (£100 x (2.2-1)) = -£120
- Total profit: +£132- £120 = +£12
Now the profit for this outcome is less than before because it has been equalised between the two possible outcomes.
Outcome 2: If the tennis player loses
- Back bet loss: -£88
- Lay bet profit: +£100
- Total profit: +£12
As you can see, both potential outcomes of the tennis match produces the same profit.
3. Over Lay
An over lay will ensure that a profit is made when the tennis player loses, and that a break-even result is produced if the tennis player wins. This requires an alteration to the back stake from the first example.
Stake Calculation Formula
Back Stake = Lay Stake / (Back Bet Profit / (Lay Bet Liability x -1))
In this example case the variables are as follows:
- Lay Stake = £100
- Back Bet Profit = £150
- Lay Bet Liability = -£120
Back Stake = £100 / (£150 / (-£120 x -1)) = £80
Outcome 1: If the tennis player wins
- Back bet profit: (£80 x 2.5) – £80= +£120
- Lay bet loss (liability): (£100 x (2.2 – 1)) = -£120
- Total profit: +£120- £120 = £0
Outcome 2: If the tennis player loses
- Back bet loss: -£80
- Lay bet profit: +£100
- Total profit: £20
This situation means that the trader cannot lose — but the profit is skewed in favour of the tennis player losing.
Summary
Here are the five key points to take away from this beginner’s guide to placing back & lay bets on the betting exchange:
- Sports trading involves two types of bets, back bets and lay bets.
- Back bets involve betting for a particular outcome of an event, while lay bets involve betting against a particular outcome. Both types of bets have their own formulas for calculating potential profit and liability.
- The back and lay odds on a betting exchange are determined by the supply and demand of the market and traders can choose to accept the going odds or request a higher price.
- In order for a trader to secure a profit from any trade, there has to be a difference in the odds. Either “back high, lay low” or “lay low, back high”.
- There are different stake calculations required to ensure that risk free profit is either spread between the outcomes of an event, or onto one particular outcome.
Lastly, it’s worth noting that the “back high, lay low” principle carries over into arbitrage betting, which involves backing an outcome at a bookmaker and laying at a lower price on the betting exchange.
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