How Bookmakers Calculate Odds [Guide]

Bookmaking success is about creating margins and balancing the books so that no matter who wins, the bookie can make a profit. The bookie’s exposure is also reflected in the odds. Odds do not only reflect the probability of an outcome, but they also reflect their own exposure. Fixed odds bookies aim to make profits regardless of the outcome. If you bet against the grain, it is possible to find great value odds.

This guide will cover all you need to know about pricing markets. We will show you how to calculate margins for bookmakers, what vig and how betting sites make their money. We will also talk about how prices change in response to betting. This includes which markets have lower or higher margins and how to spot overpriced chances before the bookie.

How are Odds Calculated and Markets Priced?

When it comes to setting odds, the last thing a bookmaker wants is to gamble on one outcome or another. The prices are set so that there is less variance, ensures profits and approximates the probability of an event happening. This allows punters to still be attracted to the outcome while also making a profit.

The margin, which is usually 5%, is what bookmakers set. They then determine the odds of the outcomes that include this commission. We will discuss the Overrround or Vig margin, which is the added margin to a bet. The margin is the difference between the probability that each outcome will occur and the probability calculated by the betting company. If the probability of each outcome is 2.0 (decimal 3, 200 in American), then the bookie will subtract their margin of 5% and give you 19/10 (2.90,190).

The real probability of an event occurring is calculated by bookmakers and odds traders using statistics, history, and ultimately human opinion (their opinions, those of other bookies, and the public). Bookmakers are more likely to have the correct probability if there is more data available. If the event is not yet recorded or has not been reported before, bookmakers will be cautious and will give odds that the actual probability will be lower. Because there is so much data, football odds are generally good value. The odds of winning X-factor, for example, are less likely and will therefore have lower margins, which makes them less valuable.

It is easiest to understand the pricing of odds by thinking about an event with only two outcomes. This is where we want to place a bet on the outcome of a football match. The flip of a coin determines which team will win and there is an exact 50/50 chance that it will happen. While the naive may believe that odds of each outcome should be equal, in reality, they are not. This is how the bookmaker makes their profit margin.

Let’s assume that the bookie has odds of 10/11 (or 1.91 in decimal) for each team to win the kickoff. It would cost us PS100 to place a PS50 bet on each team in order to win the kickoff. However, the maximum return is PS95.50 (PS50 stake + PS45.50 wins). If the book is balanced (equal amounts wagered on each team for kickoff), then the bookie will make PS4.50 per every PS100 wagered.

However, probability is just one aspect of betting pricing. The odds are not set by bookies based on real probabilities. Instead, they use the probability that their punters will bet on each outcome to help them balance their books. For more information, see our section on betting and how odds change.

The margins for head to head betting on major sports are usually between 2-5% and 20%. This can increase to 20% if you bet on more exotic markets or lines. Further details are available for markets with multiple outcomes or uncorrelated chances.

Last Updated on October 11, 2021

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