this may sound stupid but....

[deucedeuce]

What the hell is a betting exchange??

[bullring]

Something mostly limeys at betfair do.

[Woody0]

Similar to a stock exchange.

Individuals trade positions while the operator merely facillitates the trade, much like a broker, for a set fee.

For example if I want to win $100 on Seattle+3.5 at -110 and you want to bet $100 on Chicago-3.5 at +110 then our bets can be matched and we have made a trade on the exchange market.

In practice a market maker is required to provide liquidity and an orderly market much the same as a stock exchange.

This is the essential concept...note how much it differs from a traditional book.