How Does Bet Hedging Work?
Most people have happened on the phrase “hedge your bets”, as it is a very widely known and commonly used one. It can be traced back to the 1500s, in fact, when it made reference to laying off a wager by placing a smaller bet with other bookmakers. This olden-day meaning still holds true, and hedging a bet these days can be described as not only reducing risk, but, occasionally, even guaranteeing a profit.
Hedging a Bet in Order to Secure a Profit
The concept of hedging a bet is based on laying wagers on various outcomes in order to create 1 in which profit is ensured – with the winnings minus all of the stakes laid – regardless of whether or not the original bet was successful or not.
Some Canadian punters may be familiar with arbitrage betting, also known as arbing, which relies on the online betting NZ punter finding a discrepancy, however small, between the odds which a bookmaker has given and the act of placing a series of simultaneous wagers.
Hedging bets is possible due to the fact that odds shift over time, often thanks to circumstances changing, or opinion varying, and punters taking advantage of this as it occurs.
Hedge Betting is Popular in the World of Finance
Hedge betting is a popular gambling strategy in the world of financial markets, and is done in these circles by mitigating potential loss in investment by other outlays being made. This is where the term “hedge fund” arises from.
Naturally, while losses may well be reduced by hedging bets, gains will also be lowered by this practice, thanks to the outlay on the other areas of the edge.
An Example of Hedge Betting
Hedge betting as a practice is very popular amongst pro gamblers, as they tend to seek value in a market. Outright sports markets are a good place to have a look.
As an example, should a Canadian punter lay a CA$50 on Greece to win the Euro 2004 at 40/1, he or she would be on the point of winning CA$2 000 as the team reached the finals to play Portugal.
Greece, at that point, was still largely considered outsiders to attain the top spot, and Portugal was widely expected to win –which would have left the Canadian punter with a loss of CA$50.
Hedging the bet could be done by also placing a wager that backed the Portuguese team to take the trophy. If Portugal as, say 4/5 favourites to win in this example, a bet of CA$1 000 would net a profit of CA$800. So, for a win by the Greeks, a CA$1 000 profit would be seen by the Canadian punter, and the Portuguese winning would see him or her CA$800 richer. In this example, it is vital that the Canadian bettor would have to remember to back the Portuguese team to lift the trophy, as opposed to simply winning the match in 90 minutes, since the game ending in a draw would wipe out that side of the bet.