With the advent of betting exchanges a whole new method of betting has appeared. As explained in the exchange basics section exchanges allow you not just to back a selection but also to lay a selection.

Trading can involve backing and laying the same selection, backing more than one selection or laying more than one selection. The point of doing this is to ensure a profit is made whatever the outcome of the event. This form of betting has become so popular that some people actually make a decent living from just doing this.

It is possible to do this because the prices to back and lay on the exchanges are constantly changing as more and more people want to get their money on before the event starts.

The principles can be used on any event available on the exchanges but for the purposes of this article I will refer to horse racing.

When you are trading you are in effect betting on the a horse's price. If you think that the price will fall you back it and then lay it at a shorter price or if you think the price will rise you lay the selection then back it at a bigger price. If you are correct in your assessment of the market and the price moves as you expected then you can lock in a guaranteed profit. You can do this as many times as you wish on the same horse. Once you have done this you have two options, you can either leave all your profit on one horse and hope it wins or you can spread the profits amongst all he runners so that whatever horse wins you make a profit – this is known as “greening up” which comes from the exchanges which show either an amount in green or an amount in red under each selection. Green means that you will win this amount if the selection wins and red means that you will lose this amount if the selection wins. If you have greened up correctly every selection should show an amount in green.

**1. Back then lay for profit on one selection.**

Horse A's price is 3.5 and you think that the price will shorten so you back the horse for £50 at 3.5.

You are correct and the price does shorten to 2.9 and you think this horse will win so you then lay your £50 at 2.9 which means that if the horse wins you will win £30 but if the horse loses you will lose nothing.

The arithmetic,

Back Horse A £50 @ 3.5

Lay Horse A £50 @ 2.9

If horse A wins you win the back bet

£50 X 2.5 = £125

but you lose the lay bet

£50 X 1.9 = -£95

Your profit is therefore the back win minus the lay loss

£125 - £95 = £30

If horse A loses, you lose £50 from the back bet but win £50 from the lay bet resulting in no loss.

**2. Lay then back for profit on one selection.**

Horse A's price is 3.2 and you think that the price will lengthen so you lay the horse for £50 at 3.2.

You are correct and the price does lengthen, to 3.7, but you think the horse will still win so you back the horse for £50 at 3.7. This means that if the horse wins you will win £25 but if it loses you will lose nothing.

The arithmetic,

Lay Horse A £50 @ 3.2

Back Horse A £50 @ 3.7

If horse A wins you lose the lay bet

£50 X 2.2 = -£110

but you win the back bet

£50 X 2.7 = £135

Your profit is therefore the lay loss plus the back win,

-£110 + £135 = £25

If horse A loses you win £50 from the lay bet but lose £50 from the back bet resulting in no loss.

**3. Back then lay for profit on every horse.**

Horse A's price is 3.5 and you think that the price will shorten so you back the horse for £50 at 3.5.

You are correct and the price does shorten, to 2.9, and you have no idea, or don't care, which horse wins the race so you lay horse A for £60.34 at 2.9. If the horse wins you win £10.35 but if the horse loses you will win £10.34.

The arithmetic,

Back Horse A £50 @ 3.5

Lay Horse A £60.34 @ 2.9

If horse A wins you win the back bet

£50 X 2.5 = £125

but you lose the lay bet,

£60.34 X 1.9 = -£114.65

Your profit is therefore the back win less the lay loss,

£125 - £114.65 = £10.35

If horse A loses you lose the back bet of £50, but you win the lay bet of £60.34 giving you a profit of £10.34.

To calculate the amount of stake required for the lay bet the formula is,

backstake X (backodds / layodds)

As in the above example, £50 X (3.5 / 2.9) = £60.34

**4. Lay then back for profit on every horse**

Horse A's price is 3.2 and you think that the price will lengthen so you lay the horse for £50 at 3.2.

You are correct and the price does lengthen, to 3.7, and you have no idea, or don't care, which horse wins the race so you back horse A for £43.24 at 3.7. If the horse wins you win £6.75 but if the horse loses you will win £6.76.

The arithmetic,

Lay Horse A £50 @ 3.2

Back Horse A £43.24 @ 3.7

If horse A wins you lose the lay bet

£50 X 2.2 = -£110

but you win the back bet

£43.24 X 2.7 = £116.75

Your profit is therefore the lay loss plus the back win,

-£110 + £116.75 = £6.75

If horse A loses you win £50 from the back bet but lose £43.24 from the lay bet giving a profit of £6.76.

To calculate the amount of stake required for the back bet the formula is,

laystake X (layodds / backodds)

As in the above example, £50 X (3.2 / 3.7) = £43.24

**Note:** The above examples do not take commission into account. Trading means that you will have a reduced commission liability because commission is payable only on your net market profit rather than the profit from a straight back or lay.

The key to trading is knowing which way the market is going to go. A technique used by many people is called Weight Of Money (WOM). This involves looking at the amount of money available to back a selection and comparing it with the amount of money available to lay a selection, the amounts are shown under the odds on the exchanges. The theory is that if there is more money waiting to be matched on the lay side then more people want to back the horse and so the price will shorten and vice versa. There are other techniques for predicting price movement but the best way is experience. Taking the time to watch the markets and learning how, when and why they move. Spend time by trying out trading with small stakes until you are confident in what you are doing.

Sometimes the market will go against you. It is important to cut your losses and get out as soon as possible. This could mean that you will make a small loss on each selection but you could end up with large losses if you don't.

There are various software packages dedicated to exchange trading available to help you monitor the markets and to automate large parts of the process. They also automatically do all the calculations for you.

There are also training courses available to teach you how to trade.