What is Money Management – Guide for Beginners
10 July 2019
In sports betting there are many betting terms which are not easy to understand for a person who has never bet before.
It’s very complex and almost impossible for a bettor who has just discovered betting/online betting not to encounter difficulties.
To make it easier, we have written a guide that will explain betting terms and make them more understandable for the less experienced bettor.
In this article we will explain what money management is and how it works, so new bettors can get the most from it when betting.
What is Money Management?
Correct money management, or bankroll management, is the process of a bettor setting themselves a set budget and using a system to increase their potential of a long-term profit whilst also eliminating the chances of going broke too quickly.
In order for a money management system to work, bettors must:
1. Set themselves a budget solely to use when betting. To do this, bettors must take into consideration their overall incomings and outgoings and then set aside a certain amount of money for betting within a set period. For example, they could set an amount that is designed to last them twenty-eight days. The time frame used will usually depend on when the person gets paid from their job.
2. Choose a correct money management system which will set the amount the bettor can wager on each bet, by using percentages or points. There are different money management systems available, with the more simple ones explained further along in this article.
3. Gamble responsibly, stick to the chosen money management system, always approach betting with an analytical mindset and refuse to allow emotions to get in the way of the system adopted. The whole point of money management systems are to give long-term profit and prevent an empty bank account, so adopting and sticking to a system is key.
Why is Money Management Important in Sports Betting?
Correct money management gives bettors a set limit they can wager on an individual bet. This means they will stick within their budget, be able to place more bets within a given time period and prevent them from spending all of their money too quickly.
It can be far too easy, especially with inexperienced bettors, to allow emotions to get in the way or place more money on a shorter priced favourite in order to increase profit.
What they fail to look at is any profit is still a profit regardless of how large or small. It is better to make a small profit than a complete loss. So, if a bettor was restricted to betting say 3% of their overall bankroll on an individual bet but spent 15% and it lost. They have just used up five bets worth on a single bet and lost, which spends the money quicker and decreases profit potential.
The main reasons correct money management in sports betting is important are:
• To prevent emotions getting in the way and chasing losses after a few losing bets. If we get angry and frustrated after a sure-thing has let us down, it can be easy to place a higher bet in an attempt to regain those losses. Correct money management ensures we stick to a set limit.
• It also prevents becoming over-confident and staking too much when in the middle of a winning streak or lucky period.
• Bettors can go through a losing streak and still continue to bet, knowing they will not go completely bust too soon because they have a set limit on how much they can bet.
Types of Money Management Systems
There are two main staking systems we would recommend for inexperienced bettors who are either new to the world of sports betting or to using a proper money management system.
These are either a fixed staking plan or a variable staking plan.
Fixed Staking Plans
Fixed staking plans give the bettor a set amount they can wager on each bet, by taking their total bankroll into consideration and breaking it down into individual betting stakes.
There are two types of staking plans within the fixed category, which are level staking or percentage staking.
A level staking plan basically means that the bettor will break their overall bankroll down at the beginning of a set time period and stick to the same sized stake throughout that period.
For example, a bettor who has a £500 budget for the month may break it down into £5 stakes for each bet. This is just 1% of their overall budget and would give them 100 bets for the month regardless of how many bets they win or lose, then they will pocket their profit at the end of the time period and start all over again the following month.
The biggest downfall to a level system is that the stakes remain the exact same throughout the month, not taking any wins or losses into consideration. So, if we continue to lose but still bet £5 it starts to represent a bigger percentage of the bankroll remaining and likewise it will be a smaller percentage after a few wins.
A better fixed staking plan, in our opinion, is the percentage system. Some people prefer to use this system by breaking their bankroll down into points, but it works the exact same way.
To do this, the bettor must first break their bankroll down by using the following formula.
• Overall bankroll / 100 = 1 point or 1% of bankroll
So, if a person has a bankroll of £1000 they would divide it by 100 to give them a value of 10 per point or percent.
The bettor then chooses how much of their bankroll they are willing to wager on each individual bet. We recommend between 1% and 5%, with the ideal stake being around 2% or 3% to give you the best chance of making a long term profit.
You then have to multiply your individual points value or 1% by the chosen percentage, so 2 or 3 if using our ideal staking percentage.
This method of staking means that the size of stake remains the same with regards percentage of your overall bankroll but the amount will differ.
Using a staking system of 3%, we would bet £30 on each bet with a £1000 overall bankroll. So, if our first bet won at odds of 2/1, we would add £60 to the total. This means our overall bankroll for our next bet is £1060.
We then use our formula, dividing it by 100, to get 1% of £10.60. So our next bet would still be 3% but the total amount of money wagered would go up from £30 to £31.80.
With this system, we take into consideration our wins and losses and our wager size increases or decreases to reflect this whilst still sticking to our system.
What it doesn’t do, it consider the odds of each selection and each stake will be based on a percentage regardless of whether you are backing a short-priced favourite or an outsider at long odds.
Variable Staking Plans
Variable staking plans work a little different to fixed plans. This is because, although they still work in relation to our overall bankroll, they take into consideration the odds and likelihood of the bet winning.
There are several ways to use a variable staking plan.
Firstly, the bettor could rate their bets placed on confidence levels and adjust their stake accordingly. If they are extremely confident, they will bet say 5%. It would be 1% for those bets they aren’t quite sure about, and 2.5% for the bets they have medium confidence for.
Another way is to look at potential return and try to give ourselves a similar sized profit for every bet regardless of the odds. So, if we are backing a short-priced favourite our stake would be higher than if we were taking a punt on a bigger priced selection.
Both of these plans are perfectly okay, although a great deal of knowledge is required to bet based on confidence levels.
One system which takes into account all variables, such as confidence level and odds, is the Kelly Criterion system.
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Around since the 1950’s, the Kelly Criterion is a formula designed to give bettors the ideal stake based on how likely the bet is to win and the odds for that selection. It has a lot of critics but there are several professional gamblers who swear by it, so it couldn’t help to at least give it a try.
The Kelly Criterion works by using the formula:
• [(Probability * odds) – 1] / (odds-1)
If our selection is priced at decimal odds of 3.75 it means it has an implied probability of 26.7%. But, we believe the selection has a 30% chance of winning after studying recent form statistics and taking an analytical approach.
We would then use the Kelly Criterion formula to work out the ideal stake, which looks like this:
• [(0.3 * 3.75) – 1] / (3.75 – 1)
• Which goes to (1.125 – 1) / 2.75
• Which is then 0.125 / 2.75
• = 0.045
After multiplying this number by 100, according to the Kelly Criterion, our ideal stake for this particular selection is 4.5% of our overall bankroll.
If you get a result of 0.00 or a negative value it is recommended to not place a bet on this selection as there is more risk than reward.
It is possible to use what is known as a Fractional Kelly, for those who don’t fully understand how it works or want to give it a try without risking too much of their bankroll on something they have little knowledge of.
The bettor must decide on a fraction to use, lets say half of the actual Kelly Criterion amount. To work this out, you convert your fraction into a decimal of 0.5. You then use the total result from the original formula and multiply it by your fraction.
So, using the above example, you would use the formula:
• 0.045 * 0.5 = Fractional Kelly stake
In this case, after multiplying the answer by 100, the recommended stake would be 2.25% of your overall bankroll.
As you can see from our guide, there are several different money management systems available to use and are all designed to increase your long-term profit potential and decrease your chances of going bust too quickly.
Choosing the system which suits you and your gambling needs is a decision that can only be made by the individual using it and it can always be changed if you feel a different system would work better for you.
Whether you are brand new to the world of sports betting or an experienced bettor, it’s never too late to adopt or try a new money management system in order to give you a better and more profitable betting experience.
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