Until five years ago Jamie was a maths teacher; a job that he enjoyed, but did not find particularly exciting. In her spare time, Jamie started to write as a creative outlet; first funny and quirky Facebook posts, or long Instagram captions, before moving to Medium in order to flex his skills in longer form.
Hedging Your Bets – A Full Guide to This Effective Strategy
You’ve probably been told to “hedge your bets” countless times before. It’s a common phrase used often in every local bookmaker. But what is the hedge your bets meaning?
Although a simple betting strategy, it can be difficult to understand at first, especially exactly why, when and how to hedge your bets. In this guide we’ll break down the hedge your bets meaning and explain how to hedge your bets most effectively, particularly in horse racing.
Hedge my bets means backing additional outcomes to limit exposure.
I hedge my bets to limit losses or guarantee profit.
To hedge my bets lowers risk, but also potential reward.
I should concentrate on odds when I hedge my bets.
I can hedge my bets for profit using betting exchanges.
‘To Hedge Your Bets’ – A Quick Look at What It Means
To hedge your bets is to protect yourself against potential losses or to guarantee a profit by supporting more than one possible result in an event, such as a horse race.
For example, after placing a bet on the outsider of a race, you may decide to place a second bet on the favourite in order to cover any possible losses on the original bet.
This works especially well in big field handicaps such as the Melbourne Cup. With up to 24 horses on a full field, hedging your bets gives you more of a chance of recouping your money.
Hedging your bets is not only a useful way to manage risk and minimise your losses, it can also potentially be a successful strategy to maximise your profits. That is the hedge your bets meaning in full.
Hedging Your Bets Know How
“Okay, now I understand the hedge your bets meaning, but how exactly do I hedge my bets?” you may be asking.
Firstly, a quick tip: it is important to always keep a close eye on the odds when planning to hedge your bets. Odds have a tendency to fluctuate – usually due to situational factors or new market information – and this can greatly affect your potential loss or profit margins.
There are two main reasons why you may choose to hedge your bets: to reduce your risk; or to guarantee a profit. We’ll take a look at each in detail.
Taking a Smaller Loss to Reduce Your Risk
Hedging your bets in order to reduce your risk usually means taking a small guaranteed loss to avoid making an even larger loss.
There are a number of reasons why you might want to do this. The most obvious is that you no longer have any confidence in a bet you have already placed – either because you’ve simply developed doubts about it, or because new information has changed your opinion on the outcome.
Although guaranteed a loss, by hedging your bets in the example below, you limit your original exposure by half.
On the other hand, if your original bet does come through, that $175 profit will now only be $25. So be careful!
We’re All for Reducing Our Risk – An Example
Let’s say you place $100 on the aggregate winning distance at Albany being over 16 lengths; with the odds at 2.75, the possible profit is $175.
Before the first race, a fellow punter changes your mind and you decide to hedge your bet by backing the other outcomes: $75 on under 11.5 lengths and $75 on between 11.5 and 16 lengths – both at 2.63.
You have now staked a total of $250, with the lowest possible Return On Investment being just shy of $200. Instead of losing $100, you only lose $50.
Using Hedged Bets to Guarantee a Profit
Though less common, there are also times when hedge betting can be used to guarantee a profit.
You see, in the right set of circumstances, it is possible to create a situation where you are guaranteed to make a profit regardless of which bet wins or loses.
An example would be if you’d previously placed $100 on a favorite to win by over 3 lengths at 3.25. The odds then drift to 2.60 for the horse to win by under 3 lengths, and you decide to hedge your bet by placing $125 on it. This way you will get a $100 profit no matter how many lengths the horse wins by.
Hedge betting to guarantee a profit usually occurs with binary bets – bets with only two outcomes – and is therefore not very common in horse racing.
Why Bookies Hedge Their Bets
Your local bookmaker regularly hedges its bets in order to limit the potential risk involved.
Bookies lay off their liabilities by using the stakes from punters’ bets to hedge their position. This acts as an insurance policy against heavy losses while also opening the bookmaker up to large profits.
Now you know why, when and how to hedge your bets, we’ll move on and explain exactly how to calculate hedge bets.
A Quick Look at Hedge Betting Formulas
The formula for hedging your bets in order to prevent loss is as follows:
(Stakes of First Bet) / (Odds of Hedge Bet) = Smallest Stakes Required to Break Even
Here is the formula for hedging your bets in order to maximise profits:
X = (P + W1) / O
P = The profit you stand to gain on your first bet.
W1 = The stakes of your first bet.
O = Odds of the hedge bet.
Then to calculate your total profit, simply subtract X (the stakes of the hedge bet) from P:
P – X = Your Guaranteed Payout
(Decimal odds are required for all formulas.)
You can also find hedge betting software or hedge bet calculators available online.
Preventing Losses by Using the Hedge Bet Formula
Let’s take the formula for preventing loss for our first example:
You place an ante-post bet on Master of Wine to win the next Melbourne Cup. With the odds at 11, the potential profit is $1000.
But perhaps leading up to the race all of the experts back Vow and Declare (by now at 7.6) to win for the second time in a row, and you decide to hedge your bet.
The initial stake = 100
The odds of the hedge bet = 7.6
100 / 7.6 = 13.16
Therefore you’d need to spend at least $13.16 on the hedge bet in order to recoup the $100 from your original bet.
Focusing on the Hedge Bet Formula to Maximise Profits
Next we’ll focus on the formula for maximising profits using the same example as above:
The profit you stand to gain on your first bet (P) = 1000
The stakes of the first bet (W1) = 100
The odds of the hedge bet (O) = 7.6
X = (1000+100) / 7.6 = 145
Therefore you’d need to spend at least $145 on the hedge bet in order to guarantee a profit no matter which bet wins. With this you can also calculate your Return On Investment if the hedge bet comes in using the final formula (P – X): $1000 – $145 = $855.
The Benefits of Betting Exchanges – Bet High & Lay Low
Betting exchanges not only allow you to back bets as usual, they also allow you to lay bets – which means to back a bet to lose instead of win by offering odds to other punters. When lay betting you are essentially playing the bookie.
How to hedge your bets becomes much more straightforward when using betting exchanges, as you can both back and lay a bet on the same outcome.
For example, if the odds have drifted on your original lay bet, or shortened on your original back bet, you are certain to guarantee a profit if you hedge your position.
The general rule for guaranteeing a profit regardless of the outcome is to bet high and lay low.
Hedge Betting vs. Arbitrage Betting – What You Need to Know
Whereas hedge betting involves placing additional bets on different outcomes of the same event as a previously made bet, arbitrage betting (arbing for short) involves laying and backing outcomes of the same event at the same time.
Arb bets – also known as miraclebets – are used exclusively when a discrepancy between the odds of an event by different bookmakers creates an opportunity to guarantee profit.
This type of discrepancy is not common, as bookmakers almost always factor in an edge when pricing a market. Arbing relies on a negative margin to succeed – which means the back odds must be higher than the lay odds.
Bookmakers understandably frown upon this strategy, and will ban the accounts of anyone found guilty of arbing. Therefore the careers of arbitrage bettors tend not to last long.
Conclusion – A Very Useful Strategy Once Mastered
You should now have a greater understanding of the hedge your bets meaning and the various ways you can benefit from the strategy.
So you know how to hedge your bets, but is it actually worth considering?
Although it is almost impossible to guarantee a profit using this strategy to bet on horses, the high number of possible outcomes, particularly in big field handicaps, means the flexibility and control hedge betting affords makes it a useful weapon in any bettor’s arsenal.
If you do decide to try your hand at hedge betting, just make sure you take each situation as it comes; keep an eye on the odds and realise that there are no hard and fast rules when it comes to hedging your bets. And good luck!