Understanding what odds are, how they work and what they represent is the first step in developing a basic understanding of betting.
Betting odds are simply a representation of the underlying chance an event will occur – the probability. In any event, every outcome has a chance of taking place. Odds are simply an interpretation of those chances.
What is probability?
To understand what betting odds are, we must first understand probability. Probability is the likelihood of an event happening and is normally expressed as a percentage.
Betting is about assessing the probability of an event happening - from 0% (impossible) to 100% (certain). The possibility of all other potential outcomes falls in between. Bookmakers and exchanges then measure that probability and translate it into odds.
How to calculate probability
Now you understand what probability is and how it relates to betting, you can learn how to calculate it.
Using the toss of a fair coin as an example, we can calculate the probability of each possible outcome, the sum of which must be 100% as one of the outcomes will happen.
Where each possible outcome has an equal likelihood (such as a coin toss or roll of a die) we can use a simple equation to determine the probability of either.
100% / all possible outcomes
So the probability of our coin toss landing on a tail is:
How to calculate betting odds
Betting odds are another way to express probability. Now you’ve calculated the probability of an event, you can translate this into decimal betting odds with this equation:
100% / probability = decimal odds
We know the probability of a coin toss landing on tails is 50%, so the calculation of decimal odds looks like this:
Bookmakers and exchanges offer a number of odds formats. It’s important to note that irrespective of the format used, the probability is always the same. It’s just the presentation that differs.
Calculating payout from the odds
The purpose of betting is to win money. In order to do this you need to know how to calculate the payout for a bet at any given odds.
To calculate the payout from decimal odds use this equation:
stake * decimal odds
Continuing with the coin toss example, for every £10 you bet you will receive a return of £20 if you win. Once you subtract the stake you invested, it leaves you with a profit of £10.
Calculating implied probability
By understanding how betting odds represent the probability of an outcome happening and how to calculate it, you can work out the implied probability from the odds.
The equation to calculate the implied probability from the odds is:
100% / decimal odds = probability
This allows you to work out the implied probability for either of the outcomes of a coin toss:
Performing this same calculation on odds offered by bookmakers or exchanges for all possible market outcomes will produce a value greater than 100%. Why?
The odds offered don't reflect the true probability of the outcomes concerned. The amount the implied probability for the market deviates from 100% is the bookmaker/exchange’s margin or overround. This is a true measure of the value they offer.
Apply this to betting
Now you understand how betting odds work and what they represent you have a basic understanding of betting. The next step in your education is to understand how bookmakers work, which is key to finding best value odds. Once you understand this, you can learn how to calculate betting margins to identify the best bookmaker or exchange to place a bet with.