A sports betting exchange allows bettors to bet against each other instead of through a bookmaker.
If a sportsbook allows a betting exchange, it doesn't have to worry about certain sides because sportsbooks usually take a small commission on winnings from the customers.
At its core, a sports betting exchange is simply a bet between two people. It's not much different than betting with your friend that a certain team will win. One person takes one side and the other person is on the opposite side.
The main difference in an exchange compared to a bookmaker is that you can play the role of a bookmaker by laying a selection. Of course, backing a selection is still possible in the traditional sense as it means the bet will happen. For example, if you bet the Dallas Cowboys as -7 point favorites, you're betting that will happen.
When you lay a selection, you are saying the opposite in that the bet will not happen. In the above example, you would take the Cowboys not to cover as -7 point favorites, which is usually the role of a sportsbook. For this to go through, you also need someone to take the opposite bet that the Cowboys will cover.
A sports betting exchange can also be compared to a stock exchange. On the stock market you buy and short stocks. In sports betting, you're buying or shorting a team.
The main reason to use an exchange is if a sportsbook doesn't offer the bet you're looking for because it believes there is too much risk. In an exchange, you can ideally bet on anything as long as there is someone else willing to bet the other side.
In addition to a wider range of bets, you can usually find better odds and more value. Unlike sportsbooks which have to take a cut off the top to make a profit, the odds in an exchange are set by numerous bets being placed by other individuals. These odds could be better than those at a sportsbook because they match what bettors think. If they aren't reliable and someone posts a bet at ridiculous numbers, no one will take the opposite side and it won't go through.
Betting exchanges remain secondary to sportsbooks, but as sports betting grows across the United States, there's a chance that changes in the future. Exchanges were created in the early 2010s in the United Kingdom and have slowly built steam since then with new companies testing its effectiveness. While the options are limited to take part in betting exchanges, they could grow with time.