Hedge

Hedge

Strategy

Definition

Placing a bet on the opposite side of an existing wager to reduce risk or guarantee some profit. Hedging often sacrifices a portion of potential winnings in exchange for more certainty. It’s a risk management move – common when one’s initial bet is close to winning or odds have shifted favorably.

Formula

Hedge bet size ≈ $\dfrac{\text{Original Stake} \times \text{Odds of Original Bet}}{\text{Odds of Hedge Side}}$. (This formula aims to equalize outcomes.)

Example

You bet \$100 on Crawford at +200. If Crawford is leading late, Canelo’s live odds might be +150. You could **hedge** by betting \~\$150 on Canelo at -150. If Crawford wins, you profit \$200 from the original bet minus \$150 hedge = \$50. If Canelo wins, you win \$100 from the hedge bet minus \$100 original stake = \$0 (break even). Hedging guaranteed you wouldn’t lose money either way.