The Action: An exacta requires bettors to correctly predict the first- and second-place finishers in a given race. When you play an exacta, you only win if the horses you pick are first and second. If your horses finish first and third, for example, that won't cut it.
While exactas and other exotic bets (in which bettors must predict the finish of more than just one horse) are riskier than basic win, place and show bets, exactas often pay a lot more money than those basic bets.
An exacta is an appropriate bet to make when you're confident in two or more horses in any given race. If you can't decide between two horses, the logical thing to do would be to play an exacta box. A box, in horse betting, translates into "any order" wins. So, if you like the 3 and 6 horse in a particular race and you box them, you cash if either the 3 wins and 6 finishes second OR if the 6 wins and 3 finishes second.
Advanced Action: Whether and how you play an exacta should be dependent on the potential profit that can be derived if your horses finish first and second.
On the scoreboard at most tracks (and on just about every horse betting website), you'll see what's referred to as "probables". Probables indicate the likely payout if the two horses you've selected finish first and second. Naturally, the longer (or higher) the odds of your horses, the larger the payout will be if you hit your exacta bet. For example, hitting an exacta with two horses at odds of 10-1 or higher will generally return a payout well over $100 for every $1 wagered.
With that in mind, it's sometimes worthwhile to bet an exacta box with three or four horses in it, especially if the horses include a few long shots in a larger field. Remember, only two of those horses need to finish in the first and second position.
Boxing three horses in an exacta ($6 for every $1 base bet) or four horses in an exacta ($12) is not as prudent if the horses you're selecting are all favorites. Why? Because even if two favorites finish first or second, the likely return on your investment won't justify the risk you took to hit the bet. An exacta with a horse at 4-5 odds winning and horse at 3-1 odds finishing second will generally return less than $10. If you invested $12 to hit it, you're not exactly coming out ahead.
That's not to say that you shouldn't bet favorites in exactas; if you like two horses at short odds (favorites), the best thing to do would be to increase your base bet and hit the exacta multiple times. For example, instead of a $1 exacta box in horses that you're confident in, you might want to consider betting a $5 exacta box or a $10 exacta box.