A few posts ago, we had a look at arbitrage betting. In this post, we will be covering a slightly different betting strategy called hedge betting. The main point of difference between these two types of betting strategies is the way they are used. Let’s take a quick look back at arbitrage betting. This strategy involves placing two or more simultaneous bets on different outcomes. It can only be utilized when a discrepancy between odds by different bookmakers are spotted. In contrast, hedge betting involves placing additional bets on a different outcome following an initial bet being placed. The main reason for the hedge-betting strategy is to reduce risk and guarantee profits.
From a purely statistical point of view, you should not engage in hedge betting. This is because each time you place a bet, your profits are reduced by the bookmaker’s margin. However, if you are the kind of bettor who is risk averse, and wants to make guaranteed profits, hedge betting is the option for you.
A good way to understand hedge betting is to think of it as some form of insurance. The basic concept behind hedge betting is to protect your existing bets against losses. Let’s go over an example to see how this would actually work.
Understanding How To Hedge Bet
Assume there is a major event on for CS:GO, and 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 $100 on them to win. They do very well through the group stages, and the knockout rounds, and eventually make it to the final. 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. The first is to just let your initial bet of $100 on Natus Vincere run. If everything goes to plan, Natus Vincere does win, and it will give you a neat profit of $800. However, should they fail to win the match, you would have lost your initial $100.
The second option is to ensure your initial bet against a potential loss. In this case, you would need to cover your initial bet amount. To do this, you would simply divide your initial bet amount ($100) by the odds given on the opposing team (i.e. SK at $1.40). This will give you a value of $71.43. This way, if SK does win the match, you would have essentially bought protection against a loss of $100.
The third and last option is the most interesting option, and really the only method you should really be taking away from this post. You could alter the betting amounts so you come away with a win either way. Let’s work through a formula which will calculate the maximum amount of profit you could make through a hedging opportunity.
Hedge Betting Math
The formula to work out the maximum amount to hedge is:
a = (b + c)/d
a = amount to hedge
b = potential profit from the first bet
c = amount bet on the first bet
d = odds on the second wager
Using our numbers:
a = (800 + 100)/1.4
a = 642.857
This gives us the value of how much you should hedge on the second option (in this case, SK at $1.40). 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, from the profit you stand to make on the first bet:
b – a = Guaranteed return on hedge
800 – 642.857 = 157.143
We have now calculated the maximum amount we could make off from this hedge opportunity.
Be sure to check out our previous blogs. If you found this post interesting or helpful, head over to our posts on arbitrage betting and expected values. This will give you a more 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.