Exchange Back-Lay Price Discrepancy

[sandwich]

Hi,

I am not sure I understand exchanges properly, can someone please help me with this example below?

The available price to back an outcome on an exchange is 2.20. The corresponding lay price is 2.22.
Assuming a back stake of 100.

Backer stands to win (2.20 * 100 – initial stake) = 120 * (1 – commission rate); stands to lose 100.

Layer stands to win 100 * (1 – commission rate); stands to lose 122 (2.22 – 1) * 100.

If my above calculations are correct, there exists a discrepancy of 2 units more in the total combined kitty that the exchange holds if the layer loses. When the backer wins, the exchange payers the backer 120*(1-c), but has collected 122 units from the layer.

What happens to the 2 additional units in this instance?

Thanks

[admin]

Hi sandwich, the quoted back and lay odds represent two unrelated transactions.

If you accept the offered back odds of 2.20 you play the role of the traditional punter, with member X playing the role of the bookmaker.

If you accept the offered lay odds of 2.22 you play the role of the bookmaker, with member Y playing the role of the traditional punter.

The quoted odds represent the best available back odds on offer and the best available lay odds available. In the market you mentioned, suppose you wanted to back the outcome but you wanted 2.21 odds. You could enter an unmatched back bet at 2.21 odds. The system would then show that the best available back odds are 2.20 while the best available lay odds would be 2.21 (instead of 2.22). If a punter wanted to play the role of the bookmaker they could place a lay bet at 2.21 odds and your bet would then be matched. Conversely, if you wanted to lay the outcome at 2.21 odds, you could enter an unmatched lay bet at 2.21. The system would then show the best available back odds as 2.21 while the best available lay odds would remain at 2.22.

Hope that clears things up! Let me know if you have further questions.

[sandwich]

Thanks admin - much appreciated.

I had suspected they might be unrelated, but your response cleared it up well.