What Does “Hedging Your Bets” Mean?
Hedging is betting on both sides of an event to ensure you make a profit, regardless of the outcome.
Say you took a futures bet and picked the Andy Murray to win the Australian Open at a price of 9.00 at the start of the tournament. You put down 100 on Murray, which turned out to be a smart bet! Murray is in the final against Djokovic with the following prices:
Djokovic – 1.40
Murray – 3.00
If Murray wins, you are golden! You come out ahead 800! However, Murray is still a steep underdog, so you may prefer to hedge your bet and guarantee a profit.
To hedge your bet, you place a bet on Djokovic which will cover your stake that you made on Murray at the start of the open. Say you bet 300 on Djokovic, so in total you are out 400:
300 on Djokovic
100 on Murray
If Murray wins you get 900, less the 400 you bet for a profit of 500
If Djokovic wins you get 420, less the 400 you risked for a guaranteed profit of 20
As you can see, you still win big if Murray pulls off the upset, but you are covered in case he doesn’t!
Should I Hedge My Bets?
It depends. Statistically, no, you should not. Each time you place a bet you pay the oddsmaker’s margin, cutting into your profits every time you hedge. However, if you stand to make a great profit and are risk averse, hedge away!