> ## Content Index > Fetch the complete content index at: https://www.igamingnews.biz/llms.txt > Use this file to discover other available public pages before exploring further. # Betting Exchanges Fixed the Sportsbook and Stalled - URL: https://www.igamingnews.biz/betting-exchange-us-sports-betting/ - Published: 2026-07-13T12:00:00.000Z - Updated: 2026-08-12T13:12:23.000Z - Description: A betting exchange takes no margin and never limits winners, yet thin liquidity and CFTC prediction markets have kept the model a niche in US sports betting. - Author: iGamingNews Editorial Desk - Tags: Sports Betting, Markets *Image credit: Source: company disclosures and regulatory filings.* **The betting exchange solved the two things bettors hate most about sportsbooks, the built-in margin and the banning of winners, and it still cannot get traction in the United States.** A model that is structurally fairer to the customer has spent two decades stuck at the edge of the market, and the reason is now being made worse by prediction markets that copied its best idea and skipped its worst constraint. Start with what a betting exchange is, because most American bettors have never used one. ## What a betting exchange actually is On a sportsbook, the operator sets the odds, builds in a margin, and takes the other side of your bet. On an exchange, bettors bet against each other. One backs an outcome, another lays it, and the platform simply matches them and takes a commission on the net winnings. There is no odds margin baked into the price, and the operator has no reason to care who wins, because it is paid the same commission either way. That second point is the one that matters. Because a sportsbook profits from its margin, it loses money to consistently winning bettors, so it manages them out. The practice is well documented. At a Massachusetts Gaming Commission roundtable in September 2024, held after around 60 complaints, [BetMGM said it limits roughly 1 percent of its Massachusetts customers](https://www.espn.com/sports-betting/story/%5F/id/41231266/espn-sports-betting-news-sportsbooks-defend-practice-limiting-sharp-customers?ref=igamingnews.biz), the industry practice known as stake factoring. We covered the parallel fight over [account limits and disclosure rules](https://www.igamingnews.biz/sportsbook-account-limits-massachusetts-rule/) as it reached the same regulator. An exchange never has to do this. It welcomes sharp money because sharp money is just more volume to match, and more commission. The model works at scale where liquidity exists. Betfair, owned by Flutter Entertainment, runs [the world's largest betting exchange](https://www.flutter.com/b2b/exchange-partnerships/?ref=igamingnews.biz), and its own figures show 4 million customers, more than 3 billion bets matched in 2023, and over 80 billion pounds in matched volume. That is the proof the model can be a real business. The catch is that it took a UK head start of more than 20 years to build that liquidity. ## Why the model stalled in America Liquidity is the whole problem. An exchange only works if there is someone on the other side of every price, and a new exchange in a new state starts with nobody there. A thin book shows wide gaps between back and lay prices, which drives bettors back to the sportsbook that will simply take their action instantly. The network has to be large to be useful, and it cannot get large until it is useful. The US attempts show the trap. Sporttrade, founded by Alex Kane in 2018 and first live under a New Jersey licence in 2022, prices markets as a share on a 0 to 100 scale, so a bettor can [buy a position at 25 and sell it at 60](https://igamingbusiness.com/sports-betting/sporttrade-virginia-arizona-evolution/?ref=igamingnews.biz) if it moves. It is a genuinely better product, and it reached only five states: Arizona, Colorado, Iowa, New Jersey and Virginia. Prophet Exchange launched in New Jersey in August 2022, [never expanded beyond that one state, and ceased operations on 28 May 2024](https://sportshandle.com/prophet-exchange-close-new-jersey/?ref=igamingnews.biz), later relaunching as a free-to-play sweepstakes product instead. The second barrier is regulatory. Every US state licenses an exchange as a sports-betting operator, one state at a time, and Kane has said the state laws were written with traditional sportsbooks in mind and never conceptualised exchanges. So the exchange carries the sportsbook's full compliance burden while starting from zero liquidity in each market it enters. ## The idea got copied, the constraint did not Then came the venue that took the exchange's core mechanic and dropped its worst limitation. Prediction markets such as Kalshi operate under federal Commodity Futures Trading Commission oversight, treating their contracts as financial derivatives, which lets them offer event contracts nationwide without any state gambling licence. It is peer-to-peer price discovery, the same idea as an exchange, on national rails instead of state ones. The scale gap that opened is stark. Combined monthly volume on Kalshi and Polymarket rose from under 5 billion dollars in September 2025 to about [24 billion dollars by April 2026](https://www.espn.com/espn/betting/story/%5F/id/49019930/cftc-proposes-rules-limiting-prediction-markets-kalshi-sports?ref=igamingnews.biz), with sports making up the large majority of Kalshi's activity. Kane has said Kalshi's national approval "really hurt the business," and Sporttrade has now filed its own applications to become a CFTC-regulated exchange rather than fight state by state. We traced how [prediction markets became sports betting's rival](https://www.igamingnews.biz/prediction-markets-sports-betting-rival/) and how that collided with state regulators in the [Kalshi Illinois lawsuit](https://www.igamingnews.biz/kalshi-illinois-prediction-market-lawsuit/). The distinction still matters and is easy to blur. State-licensed exchanges like Betfair and Sporttrade answer to gaming regulators. Kalshi and Polymarket answer to a financial regulator. Same peer-to-peer structure, different legal foundation, and for now a very different growth ceiling. The CFTC has not left them alone either, proposing a 267-page rule in June 2026 to restrict certain sports contracts, so the federal advantage may narrow. ## A better book the market never rewarded The betting exchange is a case study in why the better mousetrap does not always win. It removed the margin and stopped punishing winners, the two features that make sportsbooks feel rigged against skilled players, and the market answered with a shrug because a fairer price is worth nothing without someone to match it. The commission-and-cash-out logic that exchanges pioneered did survive, but mostly [inside sportsbook products](https://www.igamingnews.biz/sportsbook-cash-out-margin-engine/) and now inside prediction markets, not in the exchanges themselves. The lesson for anyone building a peer-to-peer betting business is that fairness is a feature and liquidity is the product, and the venue that reaches national scale fastest, on whatever regulatory rails allow it, is the one that wins the structure exchanges invented.