Hedge Calculator

Hedging is backing the opposite side of a bet you already hold, so the two positions together pay closer to the same amount whichever way the event settles.

You are trading upside for certainty. Someone holding a live futures ticket can lock a guaranteed return instead of risking the whole thing on one game — and the arithmetic will tell you exactly what that certainty costs, which is often more than people expect.

Hedging is frequently negative in expected value, because you pay a second margin on the same event. It is a decision about risk, not about profit.

Hedging means backing the opposite outcome of a bet you already hold, so that the two positions together pay something closer to the same amount whichever way the event settles. You are trading upside for certainty. The calculator will not tell you whether that trade is worth making — but it will tell you exactly what it costs.

The equalising stake is the one that makes both outcomes identical. It falls out of a single requirement: the hedge has to return the same gross amount the original bet would. The original returns S × D₁, so the hedge stake is that figure divided by its own price.

The number to look at is guaranteed, because it is often negative. Hedging a bet at a worse price than you took locks in a loss — smaller than the loss you were risking, but a loss. That is not a flaw in the hedge; it is what insurance costs. The mistake is treating a guaranteed figure as profit without checking its sign.

Whether to hedge at all is not a maths question. In pure expected value terms, hedging a bet you believe in is usually negative: you are paying a second margin to the same industry. But expected value assumes you can absorb the variance, and a futures ticket worth six months of income is a position where the mathematically optimal play and the sensible one part company. Partial hedging exists for exactly that reason — take some of the risk off, keep some of the upside.

You hold $100 at +400. Your side is now one game away and the opposite side is available at −150.

The equalising hedge is 100 × 5.00 / 1.667 = $300. If your original wins you collect $400 and lose the $300 hedge, netting $100. If the hedge wins you collect $200 and lose the $100 original, netting $100. Same either way.

So the choice is $100 guaranteed against $400-or-nothing. Hedging is correct here only if you think your side is now worse than 40% — because 40% of $400 is $160, which beats a locked $100. If you still make yourself a favourite, the hedge costs you money in expectation.

Hedge half of it instead and you stake $150: $250 if your side wins, $50 if it does not. That is the shape most people actually want — the downside is no longer zero and the upside is still worth having.

Should I hedge?

In pure expected value, usually not — you are paying a second margin on the same event. Hedge when the variance genuinely matters to you: when the position is large relative to your bankroll, or when losing it would change your decisions. That is a risk judgement, not a maths one.

Why does my hedge guarantee a loss?

Because the combined market prices both sides against you. If the opposite side has shortened since you bet, or the two prices together imply more than 100%, no hedge stake exists that guarantees profit. The calculator shows the number honestly rather than hiding the sign.

What is a partial hedge?

A fraction of the equalising stake. It leaves you exposed to your original side while taking some risk off the table, so the two outcomes converge without meeting. Most people who say they want to hedge actually want this.

Does this work for three-way markets?

No. It assumes exactly two outcomes and that one of them must happen. Soccer with a draw, or a futures market with several live teams, needs every remaining outcome covered — see the futures hedge calculator.

What about pushes and voids?

They break the arithmetic. If either leg can push, the position has a third outcome the equalising stake does not account for, and the guaranteed figure is no longer guaranteed.

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