wageringterms.

Definition

Hedging

Also known as Hedge, Covering, Trading Out

By Reviewed Editorial policy

In short

Hedging means placing an additional bet against your original position to reduce risk or lock in profit. It usually costs expected value, and is worth doing when the size of the position has become the problem.

Hedging is betting against yourself, deliberately. A futures bet that is now well placed can be partly or fully covered by backing the other outcomes, converting an uncertain large return into a certain smaller one.

The standard case

You backed a team at 20/1 in August for £50. A £1,050 return if it wins. They have reached the final, and are now 2/1.

Backing the opponent, or laying your team on an exchange, locks in a guaranteed profit whatever happens. The exact amount depends on how much you hedge.

  • Full hedge: guaranteed profit, no upside remaining
  • Partial hedge: smaller guaranteed floor, some upside retained

It costs expected value

This is the part usually left out. If your original bet was good value, hedging it gives some of that value back, because you are now betting into the market’s margin a second time.

Hedging is therefore a risk-management decision, not a profit-maximising one. Over many repetitions, never hedging produces more money and far more variance.

When it is right anyway

  • Position size. A £1,050 potential return is not a problem. A £50,000 one, relative to a £5,000 bankroll, is. Variance at that scale can end you regardless of expectation.
  • Information changed. An injury after you bet alters the underlying probability, and hedging at the old price is simply correcting a position.
  • You need the money. Certainty has value outside the arithmetic.

Hedge on an exchange, not through cash out

Cash out is a hedge executed by the bookmaker, with the bookmaker’s margin applied. Doing it yourself on a betting exchange costs only commission, typically 2% to 5% of net winnings, and lets you choose the exact amount to cover.

The difference is often several percent of the position, which on a large hedge is significant money for two minutes of arithmetic.

Common questions

Should I hedge a futures bet?

Only for a reason. Hedging costs expected value, because you are betting into the market's margin a second time. It is right when the position has grown too large for your bankroll, when information changed, or when you need certainty.

What is the cheapest way to hedge?

Laying your selection on a betting exchange, which costs only commission of 2% to 5% on net winnings. Using the bookmaker's cash out is the same hedge with the book's margin applied, often several percent worse.

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