Hedging and Arbitrage – The Key Differences

A look at two popular betting systems

Types of Bets

Two popular types of betting systems are Hedging and Arbitrage and while there is a little bit of a crossover with them, they are very different beasts to get a grip on. The main principle of both of these types of betting systems is to simply (through some careful calculations and planning) to try and create a situation where you are able to guarantee profits from an event.

That sounds like the Holy Grail of betting right? A guaranteed win? It sounds fanciful but it is true. Using either of these systems can afford you the chance to create a positive outcome of securing winnings and along with that will come the added bonus of reducing risk. You don’t have to just nervously settle and stress over one particular outcome, instead, you can create a situation where you don’t have to worry about the outcome because you will be ahead of either way.

Hedging

Hedging is a system where you bet on one outcome of an event, say a snooker match and then oppose that original bet with a wager on the other outcome. The balance of this comes from the stakes calculation. You will put more towards the favourite in a match, while less stake goes to the underdog. But you will be looking at the minimum, to create a balanced book where no matter which player wins, you will be winning. This can be just done at one bookmaker as all you need is the calculation to get the right minimum stake on the opposing opinion to the original bet. While Hedging and Arbitrage betting are closely rated and they are both seen as systems for professional betters, of the two, Hedging is far easier and less cumbersome for beginners to get their teeth into.

Arbitrage

Arbitrage betting is similar to hedging in a way in that you are doing the same in trying to create an opportunity of winning no matter the outcome. It differs from Hedging by the fact that you can’t do this at just one bookmaker, because Arbitrage betting relies on beating the bookmaker’s edge. If you look at the odds that a bookmaker gives out the outcome of a snooker match, for example, calculate those odds in percentages (of the outcome happening) then you will see it won’t add up to 100%. Instead, it may be between 103% or 105% depending on the bookmaker’s margin. That is where they make their money.

So you can’t create an Arbitrage situation there because in order to do so you need to get that percentage under 100%. To do this you find the bookmaker offering the biggest odds on Player A and another bookmaker which is offering the biggest odds on Player B. You then calculate the right amount of stake to put towards each bet to create a system where you win either way. Arbitrage betting relies on discrepancies in betting odds.

Risks of Single Bets

What’s the point of all that work in Hedging or Arbitrage betting? Yes, looking at either system is a lot more work than just picking an outcome to back as a win single. However, if you think about all of this in terms of risk then you will see a huge advantage.

Imagine that you have backed Germany to win the World Cup at a price of 9.00 decimal. You would have to sweat it all out and hope that of all teams, they manage to go and win the thing outright. There is simply no margin of error with that. Now, if you had backed Germany to win and they got to the Final, you could then calculate a situation where you are able to back their opponents in that match and create a profit situation from either outcome.

So the risk of just relying on one bet goes out of the window at that point. Another advantage of looking at these systems can be found in the risk of a single bet. If you are backing a favourite in a situation then you have to outlay a hefty stake to really get any significant return. Even favourites have their off day of course. It is that or take a big risk on backing the underdog in a situation which may not pay off because there is less of a chance of it happening. So why not create a situation where you can get the coverage regardless of which wins?

Simple Hedging & Arbitrage Formulas

Yes, there is math involved in dealing with Hedging and Arbitrage systems. You can’t avoid it and ALWAYS double check your calculations before putting down a wager because you want to get all of this right.

Hedging: To create yourself a balanced bet situation there is a simple formula to look at.

Potential Return of Initial Bet
Divided by
Price of the Opposite Outcome
= The Amount of Stake needed for the second bet to create a balanced bet

A great thing about Hedging is that you can increase the stake of the second bet over what your calculation came out with. That would create a situation where you would stand to pick up more profit from the Favourite banking a win without increasing the risk on your initial bet.

Arbitrage: To create a positive situation where you are beating bookmakers margins, this is what you need to look for.

You have a Tennis match between Player 1 and Player 2.

Bookmaker A Odds: Player 1 at 1.30 and Player 2 at 3.90 (margin 102.5%)
Bookmaker B Odds: Player 1 at 1.40 and Player 2 at 2.90 (margin 105.9%

To calculate the bookmaker margin you need this formula
(1/Decimal Odds Option A)*100 + (1/Decimal Odds Option B)*100 = bookmaker’s margin

With Arbitrage betting, you are trying to get under a 100% margin. So if you took Player 2 from Bookmaker A at 3.90 and Player 1 from Bookmaker B at 1.40, calculate that out and you end up with a margin of 97.07% so that is now an Arbitrage situation. You need this important Players Margin to calculate the next step of the bet.

You have used the discrepancies in odds between two different bookmakers to your advantage. Now from that, you can calculate how much stake to put towards each outcome to create a balanced book. The stake needs to be in proportion to the odds.

In order to find your stake share, simply divide the total market probability ( we calculated to 97.07%) by each of the outcomes.

Player A 97.07/1.40 = 69
Player B 97.07/3.90 = 24

So 69.3% of your stake will go on Player A and then 24% of it will go on Player B at the other bookmaker.

Hedging v Arbitrage Pros and Cons

As you can see one of the big cons of Arbitrage betting is the extensive work that you have to put in compared to that off Hedging. Also with Arbitrage betting in order to make it really work you are going to need to have funded accounts at several bookmakers so that you be assured of getting yourself the best odds possible. Arbitrage betting does also rely on a strange factor of relying on a bookmaker to have gotten the odds “wrong” compared to others by offering that bigger price (or by your own judgement).

Hedge Betting is a little more straightforward as you don’t have to jump around bookmakers and you don’t need so many steps to create a balanced bet. Hedge Betting is a cautious approach to betting and by balancing out your risks you do sacrifice potential profit from having just the one win single be successful. So you are in a way, paying a bit of a premium for that coverage. There is the other scenario took of using Hedging to try and minimize a loss that is happening but still you are guaranteeing a loss by doing so.

Summary

Both systems do have their merits of course. Both can be time-consuming but they are both worth exploring to see if they are something that could add a useful weapon to your betting arsenal. There are so many variations of Hedging for example that it can really be used to great advantage. Our advice is to study them, play with them in theoretical situations by planning out on paper without placing bets and fully understand the risks involved before playing.

Also, always double check those calculations. Because you are generally putting up big stakes to cover the second bet, you don’t want a miscalculation to end up costing you.


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