Understanding Implied Commission on the Betfair Exchange
For those new to the Betfair Exchange, the concept of commission is straightforward: you pay a fee on net market winnings.
For high-volume or highly successful Betfair users, there is another way of calculating commission. Which is why understanding implied commission is crucial.
In this article, we’ll break down what implied commission is, why it exists, and what it means for you as a Betfair user.
What Is Implied Commission?
Implied commission is a notional figure used by Betfair to ensure that all traders and bettors pay a fair share of charges relative to their overall lifetime profitability.
It’s not a direct fee that’s deducted from your account. Instead, it’s a conceptual tool applied behind the scenes when Betfair calculates things like the Premium Charge. Essentially, Betfair takes your net winnings and imagines what your commission bill would have looked like if you had been charged on all profit-generating activity and losses from other people.
Why Does Implied Commission Exist?
The heart of Betfair’s model is to facilitate peer-to-peer betting, where winners are matched with losers, rather than the house.
Betfair takes a small cut in the form of commission. However, with advanced strategies—such as extensive trading, hedging, and offsetting positions across multiple markets—some users can generate large profits without paying a similarly large amount of direct commission.
Reasoning:
- Ensuring Fairness: Without implied commission, a sophisticated trader who cleverly offsets bets might pay less commission than a more straightforward bettor who just places a single winning back bet. Implied commission ensures each pays a fair share relative to their profits.
- Maintaining Viability of the Exchange: Betfair relies on commissions and charges to fund its operations and maintain a healthy exchange environment. The implied commission concept supports Betfair’s business model and ensures the exchange continues to function profitably.
- Upholding Competition: By discouraging strategies that exploit the standard commission structure, Betfair makes it tougher to gain an “unfair advantage” through commission minimisation tactics.
Calculating Implied Commission
How Implied Commission Is Calculated
Implied Commission = Market Losses × 3%
In practice, this means that for every losing bet (or net losing position) you have, Betfair attributes a notional 3% of those losses as if it were paid as commission, even though no such fee is actually taken from you.
Why 3%?
The 3% figure is a set percentage that Betfair uses as a baseline to ensure there’s some level of “commission-like” charge associated with your participation in the markets, particularly to reflect the theoretical commission that might have been paid if you had won in a losing market or if your trading style didn’t offset profits and losses so efficiently.
Combining Actual and Implied Commission
Once Betfair has the implied commission, they combine it with the actual commission you’ve paid to get a total “Commission Generated” figure, using the formula:
Commission Generated = (Commission + Implied Commission) ÷ 2
This step effectively averages out the actual commission you paid and the hypothetical commission you would have paid (implied) to produce a final number that Betfair uses in calculating Charges.
An Example in Practice
Step 1: Actual Commission Paid
Let’s say over a certain period you earned net profits in some markets and paid a total of £200 in actual commission on those winnings.
Step 2: Market Losses
During the same period, you might have incurred net losses in other markets amounting to £2,000.
Step 3: Calculating Implied Commission
Using the given 3% figure:
Implied Commission = £2,000 (Market Losses) × 3% = £60
Step 4: Determining Commission Generated
Now that we have both values, we plug them into the provided formula:
Commission Generated = (Actual Commission + Implied Commission) ÷ 2
= (£200 + £60) ÷ 2
= £260 ÷ 2
= £130
In this scenario, even though you only actually paid £200 in commission, Betfair treats the “commission generated” figure as £130 for the purposes of their Premium Charge calculations.
This lower figure arises because Betfair averages actual commission paid and implied commission to arrive at a balanced measure of how much commission you have effectively contributed, considering both your winning and losing markets.
Conclusion
Implied commission may sound like a complex, esoteric concept, but it’s essentially Betfair’s method of ensuring every successful user contributes fairly to the exchange’s ecosystem.
For most bettors, it’s a non-issue; for high earners, it’s a critical factor that can influence whether what you do and how. Understanding implied commission—why it exists, how it works, and its implications—is key to navigating the Betfair Exchange with confidence.