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Ways to Hedge a Bet

Published on: 19/08/2011

According to its dictionary definition, the verb “hedge” means to reduce one’s risk of loss by compensating transactions on the other side of a bet or speculation. In gambling, specifically, “hedging” is an action taken to mitigate the damage of a poor wager.

Consider, for example, a wager of £10 placed on Manchester United to win away at West Ham. During the warm-up just prior to the match, the Red Devils’ goalie suffers an injury on the soggy pitch and now he will not be able to play. The original bet now seems doomed. By placing a “hedge bet” on the Hammers, all or part of the £10 stake can be insured against loss.

Hedging of this sort is quite similar to buying insurance. Should the initial wager go south, all is not lost. However, if the wager succeeds, a smaller return will be paid on the partially hedged bet versus what could have been won by letting the original bet stand alone. Hedging the entire amount is rarely a good move, of course, because it makes a loss inevitable. The bookmaker always deducts a percentage of the winnings as a commission—the so-called margin, “vigorish” or “juice.”

The reduction of potential profit is why many professional handicappers advise against ever hedging bets. In their opinion, it only favours the bookmakers, guaranteeing their commission, with no added upside to the bettor. Nobody can win more by hedging. It is only possible to lose less.

On the other hand, there are certainly situations when hedging is a safe bet and a few when it cannot lose. One example of a wise hedge bet is to complement an accumulator or parlay card bet that is on the verge of success.

Consider the case where a four-fold accumulator has been selected at odds of 10/1, backing Arsenal with £10 to win on four consecutive weekends. Should they fail just once, the entire £10 stake is lost. After winning the first two matches, the Red Devils are half way to the payout, but still at risk. At this point, a £12 hedge bet at evens on their opponent would guarantee a small win if the Gunners lose and still leave a shot at the 10/1 payout if they win.

Assuming Arsenal get the third win, an additional hedge bet of at least £30 at evens can be made on the fourth opponent. There is no way to lose. If the Gunners succeed again, the net gain will be £100 - £12 - £30 = £58. If they lose, the hedge bet payout of £30 will offset the £10 initial stake and week three’s £12 loss for a net profit of £8.

Hedging is also warranted anytime ante post or futures wagers are near paying out. Before the FA Cup matches begin, a £10 wager on Arsenal at 8/1 is a long shot, but if they manage to reach the Finals, it is impossible to lose by hedging. Even if the Gunners fail, a proper hedge bet on their opponent at stakes of £20~£70 guarantees a profit.

It should come as no surprise that bookmakers themselves hedge bets. They do so to “balance the action.” Because their profits are made off commissions, it is impossible for them to lose as long as equal amounts are bet on both sides of an event. If betting becomes lopsided, they “lay off” their liability by placing hedge bets on the opposite side with another bookmaker—a common practice all over the world. This “sharing of risk” is paid for by using bettors’ money, not their own, so the cost to bookmakers for such insurance is just a small reduction in total commission.

Published on: 19/08/2011 © Bet Bind