Betting on politics: a new betting exchange

Matthew Partridge looks at Smarkets, an up-and-coming betting exchange, and explains why it's one to watch.

By the time you read this article, the results of the Stoke and Copeland by-elections will be done and dusted, so there's no point in discussing them further (though I would be surprised if either Ukip or the Lib Dems win Stoke). Instead I'm going to look at Smarkets, an up-and-coming betting exchange. While there are many bookmakers, the demise of Intrade nearly four years ago means that Betfair hasn't faced any real competition for a long time. However, this is set to change.

Smarkets (set up in 2010) has been aggressively expanding its offerings over the past nine months. It now runs 12 politics-themed markets. This is still some way behind Betfair (on more than 30), but it includes options not offered elsewhere, such as two markets on Trump's first 100 days. Smarkets' press officer Pascal Lemesre promises it will increase this further, and emphasises that its customer service team actively welcomes suggestions from punters. He also points out that Smarkets charges a lower commission 2% on net winnings, compared with Betfair's 5%. Smarkets also offers various customisation options, including the ability to view odds as percentages.

Liquidity is the backbone of any exchange and this is one area where Smarkets currently falls short. More than £400,000 was traded on Betfair on the outcome of the Stoke by-election alone Smarkets has seen less than £10,034 staked on that contest. Because of this reduced volume, the gap between the bet/lay prices is generally wider than on Betfair, making it more expensive to trade. However, Smarkets is starting to catch up: £900,000 has been traded on the outcome of the French presidential election. It's always nice to have options, and if Smarkets keeps increasing the number of political markets on offer, especially on topics that don't replicate Betfair, then it could do well. It's definitely one to watch.

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Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri