How to hedge your bets
Hedging your bets is a trading strategy implemented to reduce your risk and potentially lock in a guaranteed profit. This sports betting hedging guide explains how to hedge your bets and why you should have a hedging strategy.
What does hedging your bets mean
In its simplest form you could consider hedge betting as a form of insurance, with the aim being to protect your existing bets against potential losses.
Hedging your bets involves placing bets on a different outcome to your original bet to secure a guaranteed profit regardless of the result, or reduce your risk on a market whereby the odds have moved in the opposite direction.
Hedging has similarities to arbitrage betting with both strategies involving betting on more than one outcome to guarantee a profit, however, there is a fundamental difference.
Arbitrage betting relies on a trader finding a discrepancy across bookmaker or betting exchanges’ odds and then placing bets on all outcomes to turn the betting margin in their favour.
In comparison, a hedging strategy takes advantage of odds movements, due to situational factors or the differing reactions of traders to new market information, and can be implemented with one betting exchange such as Smarkets.
Hedging allows you to minimise your potential exposure, however, it also reduces your potential ROI.
Why hedge your bets
Understanding why to hedge your bets, and its benefits is a fundamental strategy for any bettor looking to make a profit in the long term. Above we mentioned it can be used to reduce risk or guarantee a profit, so let’s go into more detail:
Hedge betting to reduce your risk
Hedge betting can be applied to reduce your risk when the odds have moved against your original bet:
- Original lay bet - odds have shortened
- Original back bet - odds have drifted
Hedge betting in this situation would reduce your exposure and result in an overall loss, but if done correctly the loss would be lower than if you didn’t hedge your bet.
As an example let's say you bet £100 on Andy Murray at odds of 2.18 to beat Roger Federer in an upcoming tennis match. In the lead up to the match, a potential injury to Murray has been circulating in the press. The odds on Murray have now drifted to 2.24. Rather than let your bet ride and risk the exposure of a £100, you can hedge your bet.
Placing a 97.14 lay bet would result in you making an overall market loss of £4.81. This shows how you can use hedging to reduce your exposure, instead of losing £100 were Murray to lose, you would lose just £4.81 of your original stake.
Hedge betting to guarantee a profit
Hedge betting to guarantee a profit can be used as a hedging strategy when the odds have moved in your favour from your original bet:
- Original lay bet - odds have drifted
- Original back bet - odds have shortened
Bet high and lay low is the rule for hedging a bet for a guaranteed profit regardless of the result. Identifying the market movement trend accurately is key, as you can profit from any hedge bet, whether the odds move up or down.
Odds increasing or decreasing simply determines which order you hedge the market:
- When odds are increasing - lay first and back second
- When odds are decreasing - back first and lay second.
As an example let’s say you placed a £140 bet on France to beat Holland in a World Cup qualifier at odds of 1.56.
France start the game poorly but score a goal against the run of play, and their lay odds have now moved to 1.18. The odds movement has created a perfect opportunity for you to trade the market and lock in a guaranteed profit.
To do this you would use the betting exchange to make a lay bet of £185.08 on France at odds of 1.18. You now must decide whether to let your bet ride for a profit of £78.40 and risk losing your stake if France doesn’t win, or hedge your bet to guarantee a £45.08 profit regardless of the result.
How to use the hedging calculator
- Select either back or lay depending on what your initial bet on the market was.
- Enter your original stake and the decimal odds you bet with.
- Enter the opposing odds which are now available on your selection.
- Enter the commission for the betting exchange you bet with.
- The hedging calculator will then display the amount you should back or lay to lock in a guaranteed market position, irrespective of the result.
- You can use the slider to partially hedge a market, allowing you to trade out only a set percentage of your original bet.
How to hedge sports betting markets
Now you understand the basics of hedge betting and why you should use a hedging strategy, we will give you an example of how to calculate a hedge bet.
Let’s say you had identified Rory McIlroy as a potential winner of the 2017 Open Championship and had placed a £100 bet for him to win at odds of 23.00. If McIlroy goes on to win the tournament you will return £2,300 with a profit of £2,200.
As the tournament progressed McIlroy’s odds shortened and at the end of his third round was available to lay at 4.70. This provides the perfect opportunity for you to lock in a profit, regardless of whether or not he goes on to win.
Calculating your hedged bet
You must decide either to let the bet ride in the belief he will go on to win or hedge your bets and lock in a guaranteed profit if you believe he is less likely to win.
To hedge your bet, you can either use the Smarkets Trade Out feature or manually calculate the lay stake with the following equation:
Hedging calculation = (back price * back stake) / current lay odds
You would now lay McIlroy for £489.36 at odds of 4.70, to guarantee a return of £489.36 including stake, regardless of the outcome. This would include a liability of £1810.64 if McIlroy doesn't win - learn how to calculate the liability of a lay bet.
Once you have deducted the industry-low 2% Smarkets commission for your winning bet, your overall profit would be £381.57.
Profit (after Smarkets’s 2% commission has been applied)
McIlroy doesn't win
Note: If you’re hedging your bet between two different operators, rather than on one exchange you will need to convert the original lay odds to include the betting exchanges commission - learn how to calculate betting commission into odds - before calculating your lay stake.
Apply this to betting
Now you understand how to hedge your bets you can apply this hedging betting strategy to any market to either lock in a profit or reduce your risk. Hedging a bet can enable you to minimise your risk, but it will also reduce your potential ROI. Therefore it is a trade off between risk and reward that you have to make.
Remember hedging is simpler to do on a betting exchange and Smarkets offer an industry-low 2% commission.