Advice

How To Calculate Your Edge

A couple of weeks ago I wrote this post about the Ultimate Staking Plan. We’re all looking for a way to make a profit with less risk.

Part of the formula to using the staking plan in the Ultimate Staking Plan article requires you to enter the edge that you have on your bets.

But you need to know how to calculate that edge if you want to use the staking plan. Which is why I’m going to show you how to do that in just a moment.

First let’s look a little bit at what your “edge” is.

Your edge is the advantage that you have over the market. If you’re finding an edge then you are finding value in your bets which means that you will be making a profit.

The calculation for finding your edge requires two pieces of information:

  1. Your Strike Rate
  2. Your Average Odds

Whenever we calculate the average odds for the purposes of working out your edge, we need to make sure that the odds we are using are the actual average odds that you would be paid out at.

That means if you use Betfair then you need to take commission off them.

For example…

If over a few hundred bets you have average odds on Betfair of 6.00 then for working out your edge you would actually use 5.75 because that’s what you are being paid out on after commission.

To calculate this you:

Subtract one from your average odds: 6.00 – 1 = 5.00

Multiply this by one minus your commission rate: (If your commission rate is 5% then 1 – 5% = 0.95) 5.00 x 0.95 = 4.75

You only need to do this calculation if you use a betting exchange to place your bets. If you use a bookmaker then the odds you take are the odds they pay you out at, making this calculation unnecessary.

Let’s move on to how we actually calculate the edge in your bets. We can break this calculation down into three parts.

Part One

Probability of Winning x Winning Average Odds

To work out the probability of winning take your strike rate and divide it by one hundred. If, for example, you have a strike rate of 20% then you would do:

20 / 100 = 0.20

0.20 is your probability of winning.

If we take the Betfair Winning Average Odds above of 5.75 and the winning probability of 0.20 we would get:

0.20 x 4.75 = 0.95

That’s the end of part one 🙂

Part Two

(1 – Probability of Winning) x -1

Part two is simple as we’ve already worked out our probability of winning. In our example it is 0.20.

That would make this sum:

(1 – 0.20) x -1 = -0.8

Now we move on to the third and final part…

Part Three

Part One + Part Two

That’s it!

0.95 + -0.80 = 0.15

The edge in this example is 0.15. If you’d prefer to have it represented as a percentage then you simply need to multiply it by 100.

0.35 x 100 = 15%

An edge of 15% is pretty incredible over the long-term, and the figures I used in this example were for illustrative purposes only.

But the steps followed are exactly those you should do on your own results if you want to find your edge.

Once you’ve done this you can go back to the Ultimate Staking Plan and use your edge in the formula there to work out the perfect stake size for your bets.

Michael Wilding

Michael started the Race Advisor in 2009 to help punters improve their betting profits and think outside the box with their betting strategies. To date he has written over 450 articles on the site and recently started UK Racing News which has become a leading news site for horse racing in the UK and IRE. Check out my personal blog or my Google+

19 Comments

  1. Hi part one is straight forward strike rate x average odds, but i don’t see where you get the formula for part 2

    Thanks

    Dave

    1. Good question Gary, you would need to change your lay bets around to a win odds. So if you place a lay bet 3/1 then you’re risking £3 to make a £1 profit, which means your odds are 1.33.

  2. It isn’t complicated just some simple maths but you appear to have omitted that in calculating the average odds it is the WINNING odds that are required. That surely is fundamental, and without stressing this fact the formula as stated is misleading and incorrect.

  3. Hi Michael

    would you clarify please – should we use the average odds of all bets or just the winning bets as Robert says?

    there is a big difference – for instance in my ukrn spreadsheet i calculate average winning odds of 7.92 instead of 10.26 average odds of all bets.

    what an roi by the way!!

  4. Hi Michael,

    how do you make 0.2 from (1 – Probability of Winning) x -1 where the Probability of Winning is 0.2 ?

    the result is surely -0.8 ?

  5. Hi Michael
    I was a rather late picking up on this article and hence the late response. I know you will be busy with the Festival, but I just wanted to thank you for the article and to say that applying the formula to the tipsters I use, non were as low as 0.35 after a few hundred results. Should I be delighted? (it doesn’t always feel like it!)
    Paul

      1. Thanks for reply, Michael. Yes, I believe I am.
        Since my comment, I have been able to complete an analysis using staking as per Ultimate Staking Plan. I seem to have some strange results. Would you be willing to take a look at my sreadsheet if I sent it on to you?
        What I have done is to take the results from the Race Advisor website for a specific Tipster and input it into my standard analysis spreadsheet. I consider my analysis spreadsheet to be very professional and I am sure you will agree. To this I have then added my Ultimate Staking Plan analysis, so both are contained on the same spreadsheet, which would enable you to comment on both.
        I appreciate you are a very busy person, but if there is any chance I would be most grateful.
        Regards
        Paul

  6. Michael,

    Many Thanks for a very original article.
    It’s a useful method to know about. Personally, I monitor the difference between the actual Strike Rate and the ‘expected’ strike rate ( based on the probability derived from the odds taken). I also use the Archie Score – see another great article at http://www.raceadvisor.co.uk/who-is-archie/ .

    Also worth remembering a well balanced portfolio should smooth out the line on the profit graph.

    Although I do prefer level staking, due to simplicity (I like to keep things simple). Proportional staking should be investigated. Your stake (investment) should take into account the level of risk (the odds) of the bet. So larger stake on shorter odds and less on longer odds.

    Of course, most ‘layers’ already do this, by having a fixed liability, therefore getting bigger stakes back on shorter odds and less back on longer odds.

    Lastly, for the more statistical minded an SPC (Statistical Process Control) graph can be useful to detect a drop/rise in the performance of a system/tipster.

  7. Hi – old article but still gold 🙂 quick question – if I just compare my odds taken versus implied odds from my results – this should also calculate the edge correct? Then comparing it to the ROI (return vs staked) the ROI seems to be very close to the edge figure which probably makes sense..?

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