The simplest analogy for explaining margins is betting on a coin toss. When playing with a friend, you might bet £10 on heads or tails. Under these terms, the odds will be 2.0, which reflects the actual probability (50 percent) of the event occurring. A bookmaker will add the margin, giving 1.91 odds for the two equally probable outcomes.
Without the margin, the player will have to win the half not to lose any money. However, using the coin toss as an example, you would need to win some 53 percent of bets (at 1.91 odds) to break even. Thus, a bookmaker gains an advantage.
Bookmakers control the odds in such a way that they would win, thanks to margin, regardless of the outcome.
The higher the margin, the lower are the odds and chances to outpace a bookmaker in the long run. Generally, the lower the margin, the narrower is the action line. The lowest-margin bookmakers are the ones for professional punters.
You can calculate margins using the following formula:
(100/decimal odds, outcome A+ 100/decimal odds, outcome B) – 100
This formula is relevant for the market with two possible outcomes. When there are three possible outcomes, the formula is as follows:
(100/decimal odds, outcome A+ 100/decimal odds, outcome B+100/decimal odds, outcome C) – 100
As an example, let’s take a match between two tennis players. Odds for winning of the first are 1.40, while the victory of the second is estimated at 2.75. We use our formula: (100/1.40+100/2.75) — 100. So, the margin is 7.7922 percent.
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