Hedging a Bet: What is it & how do you do it?
As a keen punter, you’d know that betting involves risk and a considerable degree of uncertainty of your hard-earned cash.
However, there’s a strategy that can help mitigate the risks associated with placing bets.
This strategy is known as “hedging a bet” and it is a useful strategy of any seasoned punter.
Here is GoBet’s guide on what hedging a bet means and how you can effectively employ this strategy to help guard against potential losses.
Understanding Bet Hedging
What is Hedging a Bet?
Hedging a bet essentially involves placing a secondary wager that will secure profits or diminish losses if your initial wager doesn’t win.
The primary objective of bet hedging is to ensure a level of protection and reduce your exposure to financial risk.
In essence, hedging is an insurance policy against losing your stake. However, it’s essential to note that while this technique can reduce potential losses, it may also decrease the amount you stand to gain if your original bet is successful.
Why Hedge a Bet?
The reasons for hedging a bet can vary among punters, but typically it is used when:
- Securing Guaranteed Profits: If your initial bet has a high chance of success, you might hedge to guarantee a certain profit, no matter the outcome.
- Mitigating Potential Losses: If it appears your initial bet is unlikely to win, you might hedge to prevent or lessen a loss.
- Reacting to Changing Circumstances: If the circumstances have changed since placing the original bet (like injuries in a team you’ve backed), you might hedge to offset the increased risk.
How to Hedge a Bet
Calculating the Hedge
Hedging a bet requires some calculation. You need to determine the right amount to place on your hedge bet to ensure that you come out ahead, regardless of the outcome.
The formula used for calculating the hedge bet is:
Hedge Bet = (Odds of Original Bet * Stake of Original Bet – Stake of Original Bet) / (Hedge Bet Odds – 1)
Hedging in Practice: An Example
Let’s say you’ve used one of your favourite betting sites to bet $100 on Australia to win the Ashes at odds of $3 – but after the first couple of Tests, England is performing better than expected, and you’re not feeling quite as confident in your original bet.
The odds of England winning have shortened to $2 so you decide to hedge your bet to limit potential losses.
Using the formula above, your hedge bet would be:
Hedge Bet = ($3 * $100 – $100) / ($2 – 1) = $200 / 1 = $200
So now if Australia wins, you’d receive $300 from your original bet, lose $200 from your hedge bet, netting you $100 profit. If England wins, you’d lose your original $100 bet on Australia, win $200 from your hedge bet, and break even.
Hedging Futures Bets
In futures betting, you’re betting on an event that won’t be decided for some time, like the winner of the next AFL Grand Final or the Melbourne Cup.
Hedging futures bets can be an excellent strategy if the team/player or horse you’ve backed initially is doing well, and their odds have decreased.
Hedging Multi Bets
A multi bet is a single wager that combines two or more bets. If one of the bets in your multi is successful and you’re waiting on one more to finish, you might hedge the last leg to ensure you make a profit, regardless of the last leg’s outcome.
Considerations and Risks in Hedging a Bet
While hedging a bet can certainly be a beneficial strategy, it’s not without its considerations and risks.
- Reduced Profits: Hedging your bet will often result in reduced profits if your original bet was going to win. It’s important to balance the need for security against the reduced potential payout.
- Additional Costs: Remember, hedging involves making additional bets. Make sure you can afford the extra bet before choosing to hedge.
- Incorrect Calculations: It’s vital to calculate your hedge bet accurately. Miscalculations could lead to unexpected losses.
- Unnecessary Hedging: Not every bet needs to be hedged. Often, hedging is only useful when significant money is at stake or when conditions change dramatically after the initial bet.
The Bottom Line on Hedging your Bets
Hedging a bet can be a powerful tool in your punting strategy, allowing you to manage risk and secure profits.
However, it’s not a magic bullet that guarantees you’ll always come out on top. It requires careful thought, accurate calculations, and careful judgement on when and how to use it. Understanding and employing the hedging strategy effectively can elevate your betting game, providing you with greater control over your potential outcomes.
So whether you’re watching horse racing at the Melbourne Cup or cheering on your favourite footy team in the AFL or NRL, keep the concept of hedging in your mind and in your punting toolkit.
