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Betting margin

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A betting margin is the difference between the implied probability of odds offered and the true probability of the outcome. It is also referred to as the bookmakers' margin.

Betting margins are the means by which bookmakers make a profit, whereby bookmakers set odds that do not reflect the true probability of outcomes to give themselves an edge over the bettor and steadily make a profit over time.

When pricing an event, bookmakers aim to attract betting on both sides of the market in order to balance their liability on all possible outcomes. However, if their liability is completely balanced, the bookmaker will not make any money. Therefore, bookmakers add margins into their odds to ensure profit when all possible outcomes are priced competitively.

Betting margin example

The simplest way to explain the bookmakers' margin is with a coin toss. The probability of a coin landing on either side is 50%, therefore a fair market would offer decimal odds of 2.00 for both heads and tails to reflect this probability.

If bookmakers offered odds of 2.0 for heads and 2.0 for tails and took a £10 bet on each, they would pocket £20 and lose £20. This is a 100% market.

However, it is not in the bookmaker's interest to offer the true probability of the event, as they will not make a profit. Therefore, bookmakers would provide odds lower than 2.00 for a coin toss, deviating from the true probability to ensure long-term profit.

Bookmakers would create a bookmakers' margin by offering odds of 1.90 for both heads and tails. If the bookmaker took a £10 bet on each, they would pay out £19 and keep a £1 profit.

Calculating the betting margin

Learning how to calculate the betting margin is a crucial skill for any bettor. The means by which this is calculated differs depending on the type of bet - either a two-way bet or a 1x2 bet

Calculating margins on a two-way market

A two-way bet refers to a bet where there are two possible outcomes, such as tennis, snooker or darts. To calculate the betting margin on a two-way market, the following formula is used:

(1 / Decimal Odds option A) * 100 + (1 / Decimal Odds option B) * 100

Then subtract 100 from the answer above for the margin.

For example

  • Novak Djokovic vs Roger Federer - Novak Djokovic to win at odds of 1.67 - Roger Federer to win at odds of 2.30

(1 / 1.67) * 100 + (1 / 2.30) * 100 = 103.35

103.35 - 100 = 3.35

The betting margin is therefore 3.35%

Calculating margins on a 1x2 market

A 1x2 bet is a bet where there are three possible outcomes, such as in a football match when a team can win, lose or draw. To calculate a bookmakers' margin on a 1x2 bet, the following formula is used:

(1 / Home Odds) *100 + (1 / Away Odds) *100 + (1 / Draw Odds) *100

Then subtract 100 from the answer above for the margin.

For example

  • Chelsea vs West Ham - Chelsea to win at odds of 1.75 - West Ham to win at odds of 3.95 - draw at odds of 3.70

(1 / 1.75) *100 + (1 / 3.95) *100 + (1 / 3.70) *100 = 109.4

109.4 - 100 = 9.4

The betting margin is therefore 9.4%.

How to use betting margins in betting

By being able to calculate betting margins, you can apply this to betting by finding the bookmakers that provide the odds with the greatest betting value. This will give you a greater chance of making a long-term profit over time.

The lower the betting margin, the better the value. Lower betting margins represent implied probability odds that are closer to the actual probability of the outcome. As a result, the winnings will generally be higher.

The higher the betting margin, the higher the bookmakers' profit margin, and the more difficult it is for the bettor to make a profit.

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