- How do odds work?
- The basics of probability
- How to calculate betting odds
- Calculating a bookmaker’s margin
Everyone embarking on their betting adventure often grapples with the fundamental question: How do odds work? Grasping this concept is crucial for betting success, yet it's merely the beginning of a comprehensive betting education. Let’s dive into why understanding odds is essential for every bettor.
Seasoned bettors frequently engage in conversations with peers curious about placing casual bets on major sports events. Queries like "What are the odds of x happening?" "How do these odds translate?" and "What are my winnings for a bet of x amount?" are common. Responses to such questions, while varying in detail, revolve around the principle of probability.
What do odds represent?
Odds can be displayed in decimal, fractional, or American formats by bookmakers, yet they all serve the same purpose. They represent the likelihood of an event occurring.
The diversity in odds formats - be it American, Decimal, or Fractional - underscores that odds are a tool for facilitating betting. Bookmakers, including 7x7Bets, essentially manage risk as quantified by probability.
Betting entails evaluating the likelihood of an event's occurrence, with bookmakers like 7x7Bets utilizing odds to convey implied probability in a practical format for betting. Understanding implied probability not only aids in comparing odds across bookmakers but also underscores the importance of comprehending how to calculate probability for a holistic grasp of betting and odds.
Knowing how to determine probability and how it aligns with the bookmaker’s odds empowers you to make more educated decisions about what to bet on, when, and how much to wager.
The basics of probability
It's intriguing that despite daily encounters with risk assessment or problem-solving, many people are not adept at calculating probability.
Questions like "What's the likelihood I'll catch the train?" or "What are the chances it will rain today?" are common, yet we seldom assign numerical values to such probabilities, despite inherently evaluating chances.
Implied probability is instrumental in identifying a bookmaker's margin, a metric seldom disclosed openly. Probability ranges from 0 (impossibility) to 1 (certainty), with all other outcomes falling between these two extremes.
The coin toss is an excellent example to explain probability calculation since the true probability for each outcome (heads or tails) is known, summing up to a certain event with a probability of 1.
Calculating the probability for a chosen outcome, like heads in a coin toss, involves dividing the favorable outcomes by all possible outcomes, yielding a probability of 0.5. Converting this into a percentage, we find a 50% chance of the coin landing on heads.
How to calculate betting odds
Getting a handle on how to calculate probability yourself and converting it into odds is the first step in developing your own assessments of betting value.
Once you know how to calculate probability, turning that figure into odds is a straightforward process. Decimal odds are one of the three main formats used by bettors and bookmakers alike.
You can arrive at the Decimal odds value for your coin toss choice with the simple equation:
1 / probability for your chosen outcome
So the Decimal odds for a coin being heads is 1 (certainty) divided by the probability of it occurring which we know is 0.5, producing decimal odds of 2.0. At this point you can equally take odds and reverse engineer the implied probability with the inverse of the equation for turning probability into odds:
1/decimal odds = probability
Take your newly found knowledge and work out the implied probability for your coin toss with your friend and you'll see the aggregate implied probability of both outcomes in the coin toss is 100% - (0.5/1+0.5/1)*100 - no surprises as a certain event is 1 (100/100).
However, performing the same calculation for actual odds from your favourite bookmaker will produce a value greater than 100%. So what is happening here?
Calculating a bookmaker’s margin
The discrepancy between the odds offered and the true likelihood of outcomes introduces the bookmaker's margin into a market.
Identifying the margin is crucial for value-seeking bettors, as it reveals the true cost of a bet. Calculating a bookmaker's margin, though straightforward, is vital as it remains an opaque aspect of betting for many.
While manually calculating each bet’s margin isn't necessary, tools like 7x7Bets' Margin Calculator provide a swift means to ascertain a bookmaker's applied margin.
Using odds to calculate your payout
Calculating odds and probability opens up a new world for calculating value but you also want to know what your bet will payout if you win. For our coin toss example this requires a simple multiplication:
Your stake X decimal odds
So if you bet €10 on heads with odds of 2.0 your return including stake is 2.0 x €10 which equals €20 (this includes your €10 stake + €10 profit).
Being able to calculate probability and understand where odds actually come from is an essential part of evolving as a bettor because it enables you to calculate your own expected frequency for an event - starting to model your own odds - and then compare what you think will happen with what odds are available.
Where the two diverge you can potentially turn that edge in your favor, and generate profit, which is what a bettor should be focused on.
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