Hedge Betting Explained | Difference between hedging & Arbitrage Betting

Hedge betting 101:   What is hedge betting? How does it differ from arbitrage betting?

In sports betting, you may have come across the terms arbitrage betting and hedge betting numerous times. While you may think that they are similar strategies, they actually differ quite significantly upon closer inspection. The main point of difference between the two has to do with the timing of the bets being placed.

Within a sports betting context, the arbitrage betting strategy is defined as one that requires two or more simultaneous wagers on a sporting event. The result is that the net profit across those wagers is either equal to, or greater than $0.00 regardless of the outcome of the sporting event. In contrast, the hedge-betting strategy is defined as one that requires one or more additional bets on a sporting event that we have already bet on. The result is such that the net profit from the initial and new bets are equal to or greater than $0.00 regardless of the sporting event outcome.

In a previous write-up, we covered what arbitrage betting is, and how we can make the most of it when the opportunity arises. In this post, we will be going over what arbitrage betting is again to serve as an introduction, and also as a reminder, we will then cover the art of hedge betting in more detail, so that you can understand what it is, and make the most of those betting opportunities when they arise.

Arbitrage Betting Basics

Let’s look at arbitrage betting. This betting strategy involves placing two or more simultaneous bets on opposing outcomes for the same sporting event through different bookmakers (i.e. Team A to win on Site A, and Team B to win on Site B). It can only be utilised when there is a discrepancy between the odds on the same sporting event offered by different bookmakers. The primary goal of arbitrage betting is to find those discrepancies in odds and place bets on opposing outcomes accordingly. This basically ensures that if you were to place a bet on each side of the outcome, you would make a profit regardless of the result.

How do arbitrage opportunities arise 

From our previous posts on bookmaker margins, you should already be familiar with the fact that bookmakers always factor in a house edge to ensure their profits. Due to this, the total odds of all outcomes end up being more than 100%. The foundation of arbitrage betting relies on the combined odds from the different betting sites producing a negative margin (i.e. less than the standard 100%). This ensures that the edge is now in the favour of the bettors instead of the bookmakers.

Arbitrage betting opportunities can arise due to three main reasons. Firstly, bookmakers may have moved their odds too slowly or may have made a pricing error. Secondly, different bookmakers may differ in opinion with regard to how the odds of the sporting event should be priced at. Lastly, certain bookmakers may be running a special promotion and may be offering better sports betting odds than there should be.

 

Downsides of arbitrage betting

Although arbitrage betting sounds like the greatest betting strategy available, it is often not the case, as there are many potential downsides. One of the biggest downsides of arbitrage betting is account closures. Account closures generally happen due to the bookmakers noticing repeated suspect activities on a betting account. These suspect activities are made noticeable via the limits set by the bookmakers.

When a bettor repeatedly places bets at, or close to the max betting limit, it is common for bookmakers to give warnings to the bettor, and eventually close their account if these betting practices continue. Not only do these betting limits have the potential to close your account, they also significantly hinder your ability to properly exploit an arbitrage opportunity.

In addition to account closures, there is also the chance of bet cancellations. This basically means your outstanding bet could be cancelled at any time without any warning or notice. Bookmakers often have the right to cancel bets when mistakes have been made on their part, and have been noticed in time.

Downsides of arbitrage

This can put arbitrage bettors in huge loss positions as the bet on the opposing result may still stand. This worst-case scenario outcome can easily wipe out all of a bettors profits accrued over a long period. To save yourself from nasty surprises like this, make sure you check that your bet has been accepted, and betting has closed once the event starts before you go off somewhere to do other things. It is also a great idea to take a close look at the terms and condition of use for each bookmaker you intend to use for your arbitrage betting.

The last downside of arbitrage betting is the element of complexity involved in arbitrage betting which is not discussed in detail often enough. To exploit arbitrage betting to its fullest, a bettor needs to have numerous well-funded bookmaker accounts, as well as the time to take full advantage of the opportunities. This involves significant organisation, time, and effort. In fact, the whole process of arbitrage betting can be a painstakingly long, and dull process with minimal returns, given that 98% of arbitrage opportunities return less than 1.2% of your total bet amount. To get around this issue, numerous online services offer to do the hard work for you of finding arbitrage betting opportunities, but they always charge you a fee which decreases your overall profit, and do not eliminate the other risks outlined here.

Hedge Betting Basics

Now that we’ve covered arbitrage betting and its shortcomings, let’s take a look at what hedge betting offers for bettors. Hedge betting involves placing additional bets on different outcomes following an initial bet being placed. The main reason for hedge betting is to reduce the betting risk, and at the same time, guarantee profits (or protect against losses). In the simplest sense, hedge betting is a betting method to reduce, or even completely eliminate the risk of losing your bets. Bettors generally look for hedge betting opportunities when they are no longer comfortable with the bet they have made.  

Hedge betting is something that is talked about widely in the betting industry, but oftentimes, it is not fully understood, and ultimately, not applied in the correct manner. The bottom line is that as with arbitrage betting, hedge betting can also be a very dangerous practice for many bettors because it can easily be used incorrectly in ways that negatively impact your profits and bankroll.

Hedging & Statistics 

Hedge betting, from a purely statistical point of view, should lead you to believe that you should not engage in this form of betting.  This is because as a bettor, you are trying to maximise your returns on every bet. However, each time you place any bet, your profits are reduced by the bookmaker’s margins. With hedge betting, you cannot avoid placing multiple bets, which is why it is not recommended from a statistical viewpoint. With that said, hedge betting is still an attractive and viable option, especially if consider yourself to be the kind of bettor who is risk averse, and want to make guaranteed (albeit smaller) profits.

Now let’s look at hedge betting in a bit more detail. A very simple way to understand hedge betting is to think of it as some form of insurance for your initial bet. The basic concept behind hedge betting is to protect your existing bets against potential losses. As mentioned previously, there are two main reasons for hedge betting. The first is to reduce your risks, and the second is to guarantee your profits.

Hedge betting to reduce your risk

When applying the hedge-betting strategy to reduce your risks, you will often accept a small loss to avoid the full loss of your bet. At some point in your betting endeavours, you will probably run into a situation where this may occur. The most common and straightforward situation involves finding yourself in a position where you no longer have any confidence in your originally placed bet. For instance, this can occur when you came across some new information that has changed your mind regarding the surety of your original bet.

hedge betting moneyball

You may have found out that, for example, that a key member of the team you bet on, just got injured and will not be available to play in the match. In this case, rather than risking it all and letting your original bet ride, you now have the opportunity to hedge your bet. This is done by placing a bet on the opposing outcome as your initial bet. Assuming that all things remain equal, you will only lose a small amount of money. Sure, you’ll lose money overall, but you’ll only be losing a fraction of the amount that you would have originally lost if your instincts turned out to be true.

Hedge betting for guaranteed profits

Looking at hedge betting to guarantee profits, these largely depend on the type of bets that you have placed. For instance, let’s say that, at the start of the competition, you placed a wager on G2 to win the Dream Hack Masters. Now, at the end of pool play and the playoffs, G2 has made it all the way to the final match. At this point, you can hedge your bet by placing a bet on their opponents to win the final, creating a betting situation where you will be guaranteed an overall profit, regardless of the actual winner of the event.

Another situation could be if you had decided to place a multi-bet on 6 teams to win, and the first 5 teams that you picked have all won. In this scenario, you would be in to collect a large profit if your sixth pick also won. However, you won’t make anything at all if it loses. In this hedge betting opportunity, by placing a separate bet on the sixth team to lose, you are guaranteed a profit no matter which team wins.

Putting it into practice

Let’s go over an example in a bit more detail and some numbers to see how this would actually work.

Assume there is a major event on for CS:GO, and the bookmakers have released the odds for the outright winner of the entire event. You decide that the odds offered on Natus Vincere are quite generously priced at $9.00, so, you decide to put $1,000 on them to win. They do very well in the group stages, and the playoff rounds, and eventually make it to the grand finale. In the final match, they are up against SK. Here, the bookmakers offer the odds for the head-to-head match at $1.40 for SK, and $3.00 for Natus Vincere. This is where your opportunity for hedge betting arises.

You have three options here.

  1. This option is to simply not do anything at all, and just let your initial bet of $1,000 on Natus Vincere ride. If everything goes to plan, and Natus Vincere do win, it will give you total winnings of $9,000 with a neat profit of $8,000. However, with this option, you are risking your entire bet, and also risking the potential winnings. As a result, should they fail to win the match, you would have lost your initial $1,000, with nothing to show for it.
  2. Second option is to just ensure your initial bet against a potential loss by Natus Vincere. In this case, you would only need a bet to cover and return your initial bet amount of $1,000. To do this, you would simply divide your initial bet amount ($1,000) by the odds given on the opposing team (SK at $1.40 in this case). This will give you a value of $710.43. Now you can go ahead and make the bet of $710.43 on SK to win at $1.40. This way, if SK does win the match, you would have essentially bought protection against a loss of $1,000, and come out even.
  3. Third and last option is the most interesting and probably the only logical option for bettors wanting to be profitable. True value of the hedge bet can be seen. This situation allows us to alter the betting amounts, so we come away with a win either way. Let’s work through a simple formula which will calculate the maximum amount of profit you could make through this hedge betting opportunity.

The formula to work out the maximum amount to hedge is:

A =  ( B + C ) / D

Where:

A = amount to hedge (we want to calculate this value)

B = potential profit from the initial bet ($8,000)

C = amount bet on the initial bet ($1,000)

D = odds for the second bet ($1.40)

Using the same numbers from above we get:

A = (8,000 + 1,000)/1.4

A = 6428.57

The value of how much you should hedge on the second bet (in this case, SK to win at $1.40).  $6,428.57 bet on SK to win at $1.40 is the correct bet to make to maximise your guaranteed winnings.

Now, just to complete the hedge-betting process we can take this one step further and calculate how much we stand to win. To do this, we subtract the amount you place on the hedge bet ($6,428.57), from the profit you stand to make on the first bet ($8,000):

B – A = Guaranteed return on hedge

$8,000 – $6428.57 = $1571.43

From this, we can see you stand to earn a total profit of $1,571.43 from this hedge bet opportunity.

Concluding thoughts

Our advice on hedge betting is to take a close look at the games, and if there is any doubt (with good reasoning) on a winning result, put a hedge bet on it. You must remember that you are in to win a lot more if you don’t hedge your bets, so you also need to be thinking about your goals as a bettor. If you prefer sure wins that are on the lower side in terms of profit, then the hedge betting practice is perfect for you. If you prefer bigger wins and don’t mind a bit of risk, then the traditional betting method of just letting your bet ride is the right option for you.

Be sure to head over to our posts on arbitrage betting and expected values. This will give you a complete overview of how you can use simple mathematics to make the most out of your betting. Also, don’t forget about our online calculators which will do all the hard work for you.  

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