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How to calculate a hedge bet

We explain how to calculate a hedge bet to give you an understanding of the maths behind hedging, and why it’s a beneficial trading strategy. Learn how to hedge both back and lay bets to lock in a profit or reduce your risk.

What is hedging

Hedging your bets is a betting strategy which 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.

For example, hedge betting can be applied to reduce your risk when the odds have:

  • Shortened after an initial lay bet
  • Drifted after an initial back bet

This strategy will minimise your risk, and reduce your overall exposure.

To guarantee a profit regardless of the result hedge betting is possible when the odds have:

  • Drifted after an initial lay bet
  • Shortened after an initial back bet

Bet high and lay low is the general 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.

Now let’s explain to you how to calculate hedge bets. You can do this manually as explained below or use our hedging calculator.

Hedging calculator

How to use the hedging calculator

  1. Select either back or lay depending on what your initial bet on the market was.

  2. Enter your original stake and the decimal odds you bet with.

  3. Enter the opposing odds which are now available on your selection.

  4. Enter the commission for the betting exchange you bet with.

  5. The hedging calculator will then display the amount you should back or lay to lock in a guaranteed market position, irrespective of the result.

  6. 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 calculate a back to lay hedge bet

To calculate a back to lay hedge bet is fairly simple.

As an example let’s say you have bet £20 on Leeds United to beat Burton Albion at odds of 1.55.

During the game, Leeds take an early lead. You know they have a poor record of keeping leads this season so decide you want to hedge your bet with the lay odds now at 1.33.

Calculating how much to lay for your hedge bet

Firstly you need to calculate how much you need to lay. The equation is very simple:

Hedging calculation = (back price * back stake) / current lay odds

Example: (1.55 * 20) / 1.33 = £23.31

So you would need to lay Leeds for £23.31, with a liability of £7.69 - learn how to calculate your lay bet liability.

Calculating your profit for a back to lay hedge bet

Use the following formula to calculate your profit if your back bet wins:

Profit = (back stake * back odds) - (lay liability) - (back stake)

Example: (20 * 1.55) - (7.69) - 20 = £3.31

To calculate your return if your lay bet wins use the following formula:

Profit = (lay stake - backers stake)

Example = £23.31 - 20 = 3.31

Now you have to remove the betting exchange commission. This means you would have made a £3.24 profit by hedging with Smarkets (2% industry-low commission) irrespective of the result.

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.

How to calculate a lay to back hedge bet

Calculating a lay to back hedge bet is also straightforward. As an example let’s say you have made a £200 lay bet on horse Showroom at odds of 4.9. Your liability is therefore £779.91 - learn how to calculate your lay bet liability.

Before the off your horse has drifted out to odds of 7.2. The back odds are now much higher compared to when you placed your initial lay bet and is therefore perfect for hedging the market.

Calculating how much to back for your hedge bet

To work out your back stake use the following calculation:

Back stake: (lay odds * lay stake) / back odds

Example: (4.9 * 200) / 7.2 = 136.11

So you would now need to back showroom for £136.11.

Calculating your profit for a lay to back hedge bet

Calculating your profit if your back bet is successful can be done as follows:

Profit = (back stake * back odds) - (lay liability) - (back stake)

Example: (136.11 * 7.2) - £779.91 - 136.11 = £63.97

To calculate your return if your lay bet wins use the following formula:

Profit = (lay stake - backers stake)

Example = £200 - 136.11 = £63.89

Now you have to remove the betting exchange commission. Therefore you would have made a £62.69 or £62.61 profit by hedging with Smarkets (2% industry-low commission) regardless of the result.

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.

Hedge betting calculator

You can either calculate your hedge betting manually with the formulas we have provided above, or if trading the market solely with Smarkets you can use Smarkets’s Trade Out feature which will automatically calculate the optimal stakes for you to hedge your bets.

Apply this to betting

Now you understand how to calculate a hedge bet you can now manage your market risk or lock in a guaranteed profit regardless of the result.

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