Is matched betting legal? It uses ordinary bets and ordinary offers, so it is legal wherever betting is, and the offer terms are the only rules in play. Books do not welcome it, though, and many watch for it. An account that only ever takes offers and never bets otherwise is often restricted from future promotions, and that restriction is what ends most matched betting runs well before the offers themselves run out.
How matched betting works shows in two steps. First comes a qualifying bet: a back bet with the book and a lay bet at a close price on the exchange, which usually costs a small fraction of every unit staked. That unlocks the free bet. The free bet is then matched the same way, and because its stake is not returned when it wins, the lay is sized smaller, leaving most of the free bet's value as a locked return.
Can you lose money matched betting? Yes, through mistakes more than through bad luck: laying at the wrong stake, missing a line in the offer terms, a price that moves between the two bets, or a back bet voided while the lay still stands. Each one turns a planned small gain into a real loss. Is matched betting worth it, then? For a patient bettor with spare time, as a modest sum on each offer.