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What is hedging and why are hedge bets used in gambling?
What is hedging (or hedge betting) in gambling and soccer betting? How can hedging be used to maintain and grow bankroll?
Published on 08 November 2018
Updated on 08 November 2018
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In life, we make many mistakes. Learning to navigate mistakes can be a serious challenge, as we walk through the ups and downs of life. We may choose the wrong path many times before finding the best direction and online betting (particularly sports betting), is no different.
Why would you want to hedge your bets?
We try our hardest to find the best bet, the bet that can provide a great return based on value and expected value. That one great value selection we correctly evaluate after using soccer statistics and betting mathematics.
Unfortunately, the main issue we’re dealing with is real life. Real life is never 100% predictable due to many moments of randomness and variance.
This means that we’re all affected by something unexpected and that something unexpected can quickly ruin our sure bet or maybe remove all profit from our betting exchange trades.
This is where hedging comes in...
Hedging works best whenever you want to minimise your risk by laying the chosen outcome. By laying the expected outcome and in a sense, backing your expected bet to lose money, you’re managing risk by reducing your potential downside.
The more you manage your risk, the more you plan to reduce your losses and mould your betting experience to protect your bankroll and overtime increase your profit.
There are a range of different services that provide different techniques, instructions and directions about how you can approach hedging, but this post will help you decide on the useful traits of any service.
The idea is simple, but the execution can be difficult...
How does hedging work?
Remember, hedging is something that is used in everyday life.
Hedging in the Financial Industry
Hedging is used within the financial industry, you may have heard about call options and put options, where the owner of a stock (or other security) can have the contractual option to buy (call option) or sell (put option) the security before the contract expires.
The financial industry is aided by a combination of both options, which can reduce extreme losses and maintain a down investment within manageable losses. If performed correctly the combination of put and call can offer some potential upsides for a well-researched and a well understood financial investment.
Hedging with everyday Insurance
Many of us use all or some of the following; car insurance, home insurance, travel insurance and health insurance, etc products for legal purposes or for our peace of mind.
Each of the insurances are examples of using financial institutions to hedge potential issues with our vehicles, home, travel or health.
Think about it, we’re paying money to hedge against the risk of something unwanted occurring within our lives.
The hedge provides a protection of the downside and can offer a potentially desired upside, such as an unforeseen health scare and then having immediate access to professional and supportive healthcare professionals.
Now, you understand what hedging really is, we can walk through the best solutions to use hedging within soccer betting to provide a profit.
Where is hedging used in soccer betting?
Hedging is used in arbitrage systems and sometimes people are unsure if arbitrage works given the over reliance on betting market inefficiency.
In practical terms, if you want to place a bet on Team A to beat Team B but you want to ensure you cover the potential downside, you may decide to lay the Team A Win.
On one side, you’re hoping for a Team A win, but on the other side you’re covered in case Team A fail to win.
Playing this game of cat and mouse; keeping potential winnings on your favoured side of the bet, but maintaining small loses or break-even results if your favoured result does not materialise is the real essence of hedging.
Is hedging the same as arbitrage?
This does all sound very familiar, but it’s not quite the same thing. Arbitrage is a betting approach whereas hedging is the tactic within the approach.
To put it simply, you may describe running as an approach to moving quickly but heal-toe or flat-foot running are both tactics (methods used, no-matter how successful or unsuccessful) within the wider approach to moving quickly.
Try not to confuse the approach with the method of achieving the approach.
Hedging is merely a tool, which will allow you to create the perfect arbitrage bet, but you must understand arbitrage before you can be confident about moving forwards.
Remember, the fundamental truth, is that arbitrage relies on a combination of betting market or betting exchange inefficiency, where the odds provide options for arbitrage bettors and traders to gain profitable outcomes.
How do we hedge our soccer betting to find a profit?
This comes down to understanding the most realistic result, the potential upside if everything goes your way and the potential downside...are the key areas of successful hedging.
So, let’s use a real example to see if we can work out the best approach. If we look at a match on the Betfair betting exchange, we can demonstrate hedging.
It’s a quite a basic one, but let’s say you want to place a bet on Tolima to beat Once Caldas within the Columbian Primera A.
If we assume you want to bet that the home team; Tolima will beat Once Caldas. You could wager $10 on the home win and wait to collect the money, but if you wanted to reduce your potential losses, you could lay the home win at 1.43 at $5.
This would provide the following hedging example:
If the home win doesn’t occur
Return after the laying the home win = 1.43 x $5 = $7.15 (return)
Loss from the backing the home win = $10 (loss)
Profit = $7.15 - $10 = - $2.85 (loss)
This shows that you could reduce loses by hedging your bets. However, remember this will also reduce your potential winnings.
If the home win occurs
Return after backing the home win = 1.42 x $10 = $14.20 (return)
Loss from the losing lay selection = 1.43 x $5 = - $7.15 (loss)
Profit = $14.20 - $7.15 = $7.05 (profit)
The hedged bet will always make your final returns and therefore profits smaller, but it will help you maintain bankroll while learning how to improve your hedging strategies.
Hedging does not have to be used all the time. It’s something that should be considered in the most suitable situation.
Soccer betting is hard enough and reducing your profits is not always a great long-term strategy for bankroll growth. Unless you can increase your success rate to account for the reduced returns, you be better concentrating on a value betting approach and unique betting systems.
If you operate with vastly reduced returns, you will require an increased success rate for you to breakeven and eventually profit from your soccer betting. Otherwise, you will slowly lose your bankroll over time rather than growing your funds over time.
How to adjust hedging to increase profitability
After reading the example, you may be thinking, how to make reduced risk betting work for you. This is another simple idea, but substantially more difficult to execute.
You must adjust your backing bets and laying bets to account for different odds, so you’re performing a specific calculation based on the odds and the expected returns. This ensures you can return an increased profit based on your probability assessment and the market judgement on the outcome.
Can you use hedging during an event?
Accurately forecasting event probabilities will lead to specific wagers based on the betting markets and the punter demand during the event.
This is effectively in-play hedging and requires accurate calculation of the initial likelihood of your chosen event while you’re monitoring the markets to see if any odds changes provide a positive outcome throughout the game.
The combination of before and during the event provides another aspect of hedging and is the reason why in-play hedging could be considered a unique betting discipline.
You could back a team to score a certain number of goals before the match and watch the odds change based on the real-time game play.
If you were monitoring the action or the changing odds, you could lay your original selection if it became clear your outcome was becoming increasingly unlikely.
Therefore, not just using the standard cash out facilities of modern betting, but actively trading the other side of the selection to reduce losses and recoup a larger proportion of your winnings.
Some last words on hedging...
It’s always satisfying to return some money even when your preferred outcome is incorrect. Just make sure you calculate the effective returns on the different options and how the returns will change with the different outcomes.
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