An each-way bet is effectively two bets in one: a win bet and a place bet, both at the same stake. You pay double the single stake — one part goes on your selection to win, the other on it to finish within a defined number of places. If your selection wins, both parts pay. If it finishes in a place but not first, only the place portion returns.
Each-way terms vary by race size and bookmaker. The place fraction is typically 1/4 or 1/5 of the win odds. The number of places paid depends on the field size: in a 5-7 runner race, usually 2 places; 8-11 runners, 3 places; 12-15 runners, 4 places; 16+ runners in a handicap, sometimes 5 or more places. Special "extra place" promotions from bookmakers add an additional paid place on selected races.
The win part of an each-way bet behaves exactly like a normal win bet. The place part takes the win odds, applies the place fraction, and pays that reduced price on the place stake. For a selection at 12/1 (13.0 decimal) each-way at 1/4 odds: the place odds are 12/4 = 3/1 (4.0 decimal). A £5 each-way costs £10, and a placed-but-not-won result returns £5 × 4.0 = £20.
Each-way betting is most valuable on longer-priced selections in large fields. A 33/1 shot that places pays 33/4 = 8.25/1 on the place portion, returning far more than a smaller-priced selection at 4/1 paying 1/1 (evens) on the place.
Example
Cheltenham Festival. You back a horse each-way at 20/1, £5 each-way (£10 total). Terms: 1/4 odds, 4 places. The horse finishes 3rd. Win part loses (£5 gone). Place odds: 20/4 = 5/1. Place return: £5 × 6.0 = £30. Total return = £30. Net profit = £30 - £10 = £20.