What is liability?
Liability: Liability is the amount the exchange holds back from your account when you place a lay bet: what you'd pay out if the laid selection wins.
The first time you place a lay bet and watch the exchange balance drop by more than the lay stake you just typed in, the difference looks like an error. It isn't. The difference is liability: the amount the exchange holds in escrow against your balance until the event settles.
The formula is straightforward: liability = lay_stake × (lay_odds − 1). At typical matched-betting odds (lay around 3.0–4.0) the liability comes out to roughly two to three times the lay stake. The exchange doesn't take this money; it ringfences it. If the laid selection doesn't happen, the liability is released back to your available balance and you also collect the lay stake. If the selection wins, the liability is paid out to whoever laid against you on the exchange.
This is the single most important number to size your exchange bankroll against. The structural reason matched bettors keep more money at Smarkets than they might expect to need is liability cover, not lay-stake cover. The detail on bankroll sizing across multiple simultaneous lays sits in our shared liability guide, and on running out of liquidity at unusual odds in the exchange liquidity guide.
Worked example
Lay £6.45 at 3.10 odds on Smarkets, the same lay leg from the standard matched-bet example. The liability is £6.45 × (3.10 − 1) = £13.55. Place the bet, and your Smarkets available balance drops by £13.55 immediately. The £6.45 lay stake itself isn't shown anywhere as a "deduction"; it only matters at settlement.
If the laid selection (Man Utd) doesn't win, Smarkets releases the £13.55 back and credits you the £6.45 lay stake (£6.32 after 2% commission), so your balance ends up £6.32 higher. If Man Utd do win, the £13.55 goes to whoever backed Man Utd on the exchange and stays gone, but the back leg at the bookmaker has paid out £20 of profit, so the net is still around the small qualifying-loss range. Our standard calculator tabulates both outcomes.
Common mistake
Underfunding the exchange. People deposit just enough for the lay stake on their first bet and then can't actually place it because the liability number is bigger. A practical heuristic: keep at least three times your typical lay stake's liability available at the exchange, and don't add a second simultaneous lay until the first has settled and its liability has been released.