Money Matters - How Much To Bet?

Bet sizing is one of the most important elements in punting success, yet all but a few punters even consider it's implications or understand how much they should really be betting. They might have read somewhere that 2% of their bank is a conservative amount, so they stick to that level for each selection. Others might believe that they don't need to be conservative, so they stake at 3% of their bank or higher. In the worst cases, the punter regularly changes their bet size depending on a whole range of emotional and situational factors on the day.

For example, have you ever bet more or less on a particular horse because:

1. You were winning on the day?

2. You were losing on the day?

3. You see or hear that the "big money" has come for it?

4. It's very short in betting and the consensus of opinion is that it's virtually over the line?

It's obvious to most that regularly changing your bet size in the above circumstances does not promote long-term success, but even if you follow a consistent staking level you may still not be headed down the right path towards your punting goals.

The principal goal of betting for financial gain is to maximise profit dollars while protecting your bankroll within a risk threshold you are comfortable with. Depending on the odds range of horses you back and your overall winning edge, you will experience drawdown (losing) periods that eat into your betting capital. The amount that these losing periods take from your betting capital is essentially your betting risk.

Most punters understand that they need to maximise their profit, but they don't consider the other side of the equation and that is the level of risk they expose their bankroll to. To be a successful punter you need to get the right balance between profit and risk.

How Does Bet Size Fit Into The Equation?

1. If you bet too much on each selection then normally expected losing runs (drawdown periods) will either wipe out your bankroll entirely or see it get so low that you lose confidence in your selection method and change it, or give up betting (either entirely or until you get a new bank.) Many people follow this pattern for their entire betting lives and it's often because they simply bet too much on each horse (relative to their bankroll), rather than the selection method itself.

2. If you don't bet enough on each selection, then you will be under-utilising your betting capital and not making the most amount of profit from it possible.

For example, if you have a $10,000 betting bank, staking an average of $1000 on each selection no matter what your strike rate or edge, will eventually see you go broke (risk too high). At the same time, staking just $50 on each selection will never see you go broke (assuming you have a profit edge), but at the same time you won't make nearly as much money as you should with that amount of capital (risk too low.)

Either way, you are not achieving the principal goal of betting... "maximising your profit dollars while protecting your bankroll within a risk threshold you are comfortable with."

Assuming you have a profit edge, the key driver in achieving this goal is getting your bet size right!

What Determines The Optimal Bet Size?

When betting horses to win, the optimal bet size depends on three key factors:

1. The probability of success i.e. strike rate %

2. Your edge over the market i.e. profit %

3. Your personal risk threshold i.e. the percentage of your starting capital you are comfortable exposing during the largest losing runs you will experience in a medium to long-term betting cycle. The more you are happy to risk, the larger your bet can be and therefore the more profit you can make. Of course a larger bet size means you can also lose more, so balance is the key.

For the sake of simplicity in this article we are going to assume a range of average strike rates for all bets and an overall profit edge of 10% (i.e. 10% profit on turnover.) Most people tend to significantly overestimate their long-term edge, so using a standard 10% will help steer you in the right direction for practical bet sizing.

The risk threshold you decide on is a personal thing, but might be influenced by the amount of capital you plan to start with and the impact on your life if you lose it. Starting with $1,000 you may decide to be more aggressive and set your risk to 75% or higher as losing that amount won't greatly affect your life.  However if you are starting with significantly more then you will probably want to be more conservative (around 50% or lower). 

A risk threshold of 50% may seem low to some... after all, if you have $10,000 to bet with, why size your bets so that you only lose $5,000 in a big losing run?

Well, your risk threshold isn't only about protecting your bank so that you don't lose it all during a losing run. Just as importantly it's about protecting your confidence so that at the bottom of a losing run you still have enough money left behind you to feel confident enough to continue.

Take it as a given that you will experience big losing runs (even if you are a winning punter) and that protecting your confidence so you can continue is absolutely vital. You cannot afford to allow your bank to get to so low that you feel like giving up and switching to something else. Falling into this pattern means you will never reach your punting goals. Also remember that losing runs can always be greater than expected so it pays to be conservative.

What Is The Optimal Bet Size?

Through a process of over 1,000,000 betting simulations we were able to calculate the drawdowns experienced during losing periods at various strike rate levels and the impact that has on your betting bank for different bet sizes. From that data we can present the following table, which shows a the optimal bet size for a given strike rate and risk threshold (assuming 10% profit edge.)

If your average strike rate is 35% and you set a 60% risk threshold then the optimal average bet is 1.2% of your bank. This bet size will allow you to maximise your profit, while staying within the 60% risk threshold you decided on.

In practice, if you start with $10,000 and bet an average of 1.2% of your starting bank ($120) then chances are that at some stage you will drop around $6,000 from your historical bank high. Seems a lot doesn't it? Especially when you have a 10% long-term edge. Unfortunately that's the reality of betting and one that few punters understand.

If that losing run comes when you bank is still around $10,000 then you will be down to $4,000. If it comes after your bank has grown to $15,000 then you will only be down to $9,000. The amount ($6,000) though is still relative to your starting bank because that's what your 1.2% stake is based on. If you set your bet amount to 1.2% of the increased bank (say $180 with a $15,000 bank) then your drawdown during a big losing run will be $9,000 (60% of $15,000.) It's all relative.

Could you still continue in the same consistent and disciplined manner if you started with $10,000 and dropped to $4,000? Or built your bank to $15,000, only to see it fall to $9,000 during an extended losing run? It's not something you can answer until you are in that situation, but if there is any doubt, then your risk threshold probably needs to be lower.

This table highlights how traditional advice causes many punters to over-bet their selections relative to their bank. Betting 2% of your bank with a 35% strike rate puts you well above the 80% risk threshold (98% actually) so it's almost certain that you will go broke or give up before that... even if you have a 10% long-term edge. The problem has nothing to do with your selections, but the amount you bet on them. Betting 2.5% or even 3.0% is obviously a sure fire recipe for disaster.

As you can see, the higher your strike rate, the more you can afford to stake for the same level of risk. That's because a higher strike rate provides more frequent winners and therefore less volatility in your bankroll swings (lower risk). 

In A Nutshell...

Successful betting is about maximising your profit dollars while protecting your betting capital and confidence so you can continue when faced with a significant losing period. The only way you can do this is by getting your bet size right. If you bet too much on each selection then a normally expected losing run could send you broke. If you don't bet enough then your risk will always be below the level you could actually tolerate and you won't make as much as you could (or should) with your betting capital.

Getting the balance right is critical to your punting success and the suggested bet sizes above help you to do just that. Use these guidelines in your betting plan and you will be much better positioned to develop and most importantly sustain a long-term income from betting.