Underlaying - what is it and why do it?

Introduction
Underlaying is the term used to refer to a matched bet where you do not lay your initial back bet off completely. Most commonly 'underlaying' is used to refer to a lay bet placed on a betting exchange like Betfair, although it can be used to refer to a 2 way (or more) 'dutch' where you back 'the other side' of your initial bet at other bookmaker(s).

Here is a very simple example of an underlayed matched bet:

• Back £25 at odds of 7 at BookA for ManUtd to win 1-0
• Lay £25 at odds of 6.6 at Betfair (5% commission)

This is an 'underlay' because the 'optimal' amount to lay at Betfair is actually £26.72, so by only laying £25 you are laying less at Betfair than you would normally. If we compare the possible outcomes of the underlayed matched bet compared to the 'optimal' matched bet:

Optimal Matched Bet

• Back £25 at odds of 7 at BookA for ManUtd to win 1-0
• Lay £26.72 at odds of 6.6 at Betfair (5% commission)

possible outcomes:

• Result is 1-0 Man Utd: +150 (back bet profit) - 149.63 (lay bet loss) = £0.37 profit
• Result is NOT 1-0 Man Utd: -25 (back bet loss) + 25.38 (lay bet profit) = £0.38 profit

So either way you have a profit of ~38p no matter what the result is.

Underlayed Matched Bet

• Back £25 at odds of 7 at BookA for ManUtd to win 1-0
• Lay £25 at odds of 6.6 at Betfair (5% commission)

possible outcomes:

• Result is 1-0 Man Utd: +150 (back bet profit) - 140 (lay bet loss) = £10 profit
• Result is NOT 1-0 Man Utd: -25 (back bet loss) + 23.75 (lay bet profit) = £1.25 loss

So by underlaying you will make a profit of £10 if the bet wins (the result is 1-0) or you make a loss of £1.25 if the bet loses.