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Betfair is an innovative concept and a successful business model that has the potential to kill the traditional betting systems. The most crucial factor that makes Betfair a big success is the lack of bookmaker, the middleman. There is no bookmaker. Players on both sides of the bet are users of Betfair like you and me. The odds are not decided by any bookies or Betfair, but by the market forces created by bids and offers made by users. Lack of bookmakers leads to a total transparency in the system and creates a level playing field for all the parties involved. To be able to appreciate this advantage, let's see how a bookmaker operates.

In the traditional market, when you place your bet at a bookmaker's office, you back a particular outcome. If the outcome is in your favour, you win money and the amount you make is decided by the odds set by the bookmaker. On the other hand, bookmaker takes the other side of the bet. So if the outcome is against you, he keeps the money that you bet. In betting parlance, we say that the bookmaker lays the bet for you. As the bookmaker goes on collecting bids from his clients, he sees to it that he has equally opposing odds so that if he loses to one client, he wins from some other client. The odds that he sells are such that the arbitrage position always wins more for him than it loses.
Effectively, he always makes some money irrespective of the outcome of the event. This process of selling odds such that the bookmaker himself stays in a neutral position is called as making a book.

Let's take a simple example to see how a bookmaker makes money. Suppose a bookmaker is taking bets for a soccer match in which there are only two possible outcomes. Suppose he finds two gamblers willing to bet on the two opposite views. Both the teams are equally good and no one has any special advantage. The bookmaker would put the odds at 4-5 and 4-5 for both the possibilities. If both the gamblers bet $100 each, then the winner would get $180, he would make a profit of $80, the loser would lose $100 and the bookmaker would pocket a cool $20 without knowing anything about soccer. Same bet on Betfair would make it possible to create odds of 1-1 for both the contestants in the absence of a bookmaker. Moreover, the odds would be decided by the bids placed by the players themselves. The winner would make $100 on $100 (minus some miniscule fees) and not just $80. This is how absence of a bookmaker can reduce commissions drastically, especially the immeasurable hidden costs which cannot be known without actually seeing the entire book of the bookmaker.

The greater the odds of the horse, the bigger the odds on betfair. A horse at 33/1 can be anything between 40/1 and 80/1. The favourites are normally .2 to .5 better and the discrepancies in the price get greater as the price gets bigger, giving fantastic value on backing horses.

The next best thing is the ability to lay horses. This brings a multitude of opportunities into play ie arbitrage betting or trading. This takes away the gambling and it protects your bank.You can back a horse to win and then lay it to lose protecting your bank and either giving yourself a free bet or winning on any outcome. This is also available on in running betting where the odds on a horse can quite dramatically change. Just for example on Saturday night may 24th 2008 a horse called Harlov won, beating Take a stand in a photo. There was '16 placed on harlov to win at 999/1 yes that is right 999/1. Take a stand was backed for '16000 at 1.01 and lost. I will write more about this type of betting in another article. The best laying system I use, you can see by following the link.