Little Mix – The Dilemma
Before we go any further, I know that these figures aren’t quite right, for instance you need to refund the stake yadda yadda – but I have tried to explain this as simply as possible for people who don’t understand hedging. I’ve probably failed miserably…!
For people who don’t understand, let me explain hedging.
If you back someone at, say 100-1 (so you win £100 and your stake back for every £1 you place) and their odds come in (say to 20-1) you could HEDGE your bet.
On some betting sites, you can play the role of the bookmaker and set your own odds and see if someone wants to accept the bet. So say you reckon Kitty is going next and I don’t, I could say “OK – give me a pound and if you’re right, I’ll give you £6. If you’re wrong, I keep the pound”. We could barter about the odds – you might say you want £10 per pound you stake, but that is what sites such as Betfair allow you to do. Set odds and take money from other people who think they are right, when they turn out to be wrong!
I have Little Mix to WIN at about 85-1 at the moment. If they win, I win about £850. If they lose, I get nothing…. But what if… I offered people odds of 20-1 (currently available on Betfair)? Let’s say someone accepts, hands over £40 to me, meaning I have to give them 20 lots of £40 if they are right (20-1).
Little Mix win the X Factor
I’d pay out £800 (40 lots of £20) to the person who thought Little Mix would win,
and get £850 from my original bet. = £850-£800 = £50 profit
Little Mix don’t win the X Factor.
I don’t win the £850 and lose my £10 stake
But I gain the £40 from the person who was also wrong
= £30 profit
If you didn’t understand that, don’t worry. Question is – should I take five times my money now on Little Mix’s success, or hold out for more…? Thoughts?