Hedging Strategies: Reducing Your Risk



The strategy of hedging in sports betting is often more talked about but much less understood. The definition of a hedge is an investment that reduces the risk of adverse price movements in an asset. Hedging can be illustrated using an analogy. If you own a home in a flooding-prone town, you'd want to protect your home from the risk of flooding, which can be done by taking out an insurance policy. As a result, a risk-reward trade-off occurs - while the insurance policy (hedge) reduces potential risk, it also eats into potential gains - hedging is not free. In this article, we'll take a look at the how hedging can be used to reduce your risk in sports betting.

Applicability

In the most basic form, you can hedge a bet to cancel out your original wager if you no longer feel comfortable with it. If you placed a wager on the Yankees at -120 or 1.83 but as the game approaches, you start to feel less and less comfortable, you can hedge your original wager by betting on the other team - in this case the Red Sox. If the price for the Red Sox is +100 or 2.00, you could place the same bet amount as the Yankees' wager to effectively cancel out your original wager. The only money you would lose is from the juice you would have to pay out if the Yankees ended up winning.

Playoff Series Bets

Another way in sports betting that hedging can be extremely effective is with series bets in the playoffs. If the Yankees are playing against the Red Sox and the Red Sox are +150 or 2.50 underdogs but you think that the Red Sox have a good chance to win the series, you might place a $100 wager on the Red Sox to win. If, after the first game of the series, the Red Sox happen to win that game, the series price will adjust significantly. Now, the Yankees might be +110 or 2.10 to win the series since they've found themselves down one game to none. If you placed $100 on the Yankees at +110 or 2.10, you'll net $50 if the Red Sox win and $10 if the Yankees win - a guaranteed profit no matter which side wins. Series bets can be hedged in this way or to cancel out an original series bet or guarantee a much larger profit if one team wins and a small loss is the other team wins.

Live In-Play Bets

Lastly, hedging can also be applied to live in-play bets. The concept is similar to series bets. Similar to the first example, if you placed a wager on the Red Sox to win at +100 or 2.00 and after the start of the game, the Red Sox are winning 2-0, the payout for the Yankees to win might be adjusted to +200 or 3.00. By placing a live in-play bet on the Yankees to win, you'll be able to hedge the game so that you'll be guaranteed a profit regardless of the outcome or make a much larger profit if one side wins and a small loss or break even if the other side wins.

Challenges to Hedging

Although hedging seems like a sound strategy that should be employed by everyone, there are some challenges associated with hedging as well. One quirk is that when it comes to hedging, the bettor must usually act fast and with precision. Line movements are fast and you must be good with calculating how much to bet and at the price range that will allow you to hedge. If hedging is performed incorrectly, it will actually increase your exposure to larger potential losses.