How to Hedge a Bet

Published: 06/07/2011
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It is not uncommon in life to regret a decision that cannot be revoked. In many cases, there may be no further choice but to live with the consequences, for better or worse. In gambling, however, there is often an action that can be taken to mitigate the damage of a poor wager. It is known as “hedging a bet.”

By strict definition, “to hedge” means to reduce one’s risk of loss (a bet or speculation) by compensating transactions on the other side. For example, suppose one has wagered £20 on Arsenal to win at Chelsea. Just be fore the match, one of the Gunners’ key strikers is injured while warming up on the soggy pitch and won’t be able to play. By placing a compensating wager on the Blues, all or part of the £20 can be protected.

In this sense, hedging is a bit like purchasing insurance. If the wager goes south, all is not lost. On the other hand, if the wager succeeds, a far lower return will be paid on a partially hedged bet compared to what could be won if the original bet had stood alone. What’s more, if the entire amount is hedged, a loss is inevitable, since the bookmaker always takes a percentage of the winnings—the so-called “vigorish,” “juice,” or margin.

For this reason, many professional handicappers advise against hedging bets. They say it only serves the bookmakers, guaranteeing them a commission, without any additional upside to the bettor. It is not possible to win more by hedging, only to lose less.

That said, there are more than a few situations where hedging is not only a safe bet, but also warranted because it cannot lose. A good example is a four-fold accumulator or parlay card in which Manchester United have been backed with £20 to win on four consecutive weekends at odds of 10/1. If they fail even once, the entire bet is lost.

After the Red Devils win the first two matches, the accumulator wager is half way home, but still at risk. A hedge can be made by betting on their opponent on the third weekend… say £20 at evens, which would recoup the initial stake if they stumble. Should they win, however, the bettor now stands to gain £zero on the fourth match for a win, minus the £20 hedge bet lost on the third match, for a net profit of £180.

At this stage, an additional hedge bet of at least £40 at evens can be made on the last opponent, in full confidence that there is now no way to lose. If Man U wins, the net gain will be £zero - £20 - £40 = £140. If they lose, the hedge bet payout of £40 will offset the two £20 losses. In fact, as much as £100 can be bet on the hedge, and there will be a profit of £80 no matter what transpires.

Another example of when to hedge is anytime an ante post or futures wager is ripe for a payout. Prior to the FA Cup knockout matches, a £20 bet on Chelsea at 6/1 is a long shot, but once they reach the Finals, the bettor cannot lose, even if the Blues do, as long as the wager is properly hedged. Simply bet on their opponent at stakes of £20~£60.

Bookmakers themselves frequently hedge bets to “balance the action.” Since they make their profit off commissions, they cannot lose if equal amounts are wagered on both sides of an event. When betting on one side is too heavy, they “lay off” the liability by making hedge bets on the opposite side with another bookmaker. Of course, this “sharing of risk” is actually paid for with bettors money, not their own.

Published on: 06/07/2011

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Comment on this article
Will  at 06/09/2014 20:53:27

I wonder whether an example I have would be "hedging a bet". In American Fantasy Football, suppose I start a poorer kicker than my regular starter because my opponent that week is starting that kicker`s quarterback. I wouldn`t do this unless part way through the week, I`m ahead and the opponent is depending on his quarterback to score big points (that kicker will score one point for every four the qb gets from touchdowns). This increases my chance of winning that week, but is a risk because of the player I drop for a kicker I won`t keep. Is that an example of hedging my bet?

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