*Updated July 26, 2021*

## An introduction to betting odds

Betting odds might seem confusing to begin with but you need to understand what they represent to be successful in betting. Betting odds can be explained by breaking them down into the following:

- What odds represent
- How to convert odds back to raw chance/probability
- How to calculate your potential winnings before placing your bet
- What the margin implied by the odds is - that is the bookmaker's edge, or implied cost of placing a bet.

There's no need to feel intimidated if you are fairly new to betting, it’s much simpler than you might think. Though there are several odds formats available at Cloudbet we'll stick to decimal odds as they are the easiest to understand and are also the most popular.

## What betting odds represent

Say Alexander Zverev is playing Roger Federer at Wimbledon and their head-to-head stats looked like this:

Alexander Zverev - 4 wins

Roger Federer - 6 wins

Total head-to-head matches - 10

So they’ve played 10 times, with Federer winning 6 and Zverev 4; from these basic stats we can make the following statements:

Roger Federer won 6/10 – from this we can say on average his chance of beating Alexander Zverev is 60% which represents a probability (*p*) of 0.6.

Zverev has 4/10 - from this we can say on average his chance of beating Federer 40%, or a probability (*p*) of 0.4.

0.4 + 0.6 = 1.0 – which in terms of probability (*p*) = 1, which is certainty.

One of the two players will definitely win, which seems a bit obvious but is actually important to understand.

Probability answers the question - how likely is something to happen - while betting odds are simply answering the question – how often will that event happen. So let's turn the probability of the next hypothetical match between Federer and Zverev into odds based simply on their known previous encounters.

## The relationship between odds & probability

Hopefully the maths so far should be fairly intuitive, but things get a little trickier when you convert probability to betting odds, the dominant form being decimals.

Here’s how to calculate betting odds from probability:

Simply do the sum 1/*p *where *p* is the probability (as calculated above).

So to calculate the implied betting odds from Federer's form above (6 wins from 10 matches) do this sum:

1/0.6 = 1.66; so Federer would have decimal odds of 1.66 to beat Zverev.

And for Zverev:

1/0.4 = 2.5; so Zverev would have decimal odds of 2.50 to beat Federer.

What is slightly confusing about decimal odds is that they always include your stake, which is crucial to then work out of your potential profit.

## Working out potential profit from decimal odds

Once you get your head around what odds mean and how to calculate them you’ll want to understand how to calculate what you get back for a bet.

To do this simply multiply your stake by the decimals odds but remember this includes your original stake.

0.1 BTC on Zverev at 2.50 returns 0.25 BTC (Stake*Odds which is 0.1*2.50) which is made up of *0.1 stake* and *0.15 profit*.

0.1 BTC on Federer at 1.66 returns 0.166 BTC (0.1*1.66) which is made up of *0.1 stake* and *0.066 profit*.

## Calculating the margin - the cost of placing a bet

In our market the probability of the two outcomes added up to 1 or a 100% chance, which is what you would expert of a *fair market*. The same would be true of a coin-toss, with Heads and Tails both having 0.5 probability of 50% chance - with a 100% chance of either outcome.

If you bet against a friend nether of you would have an edge. In the short-term, luck would determine who wins or loses, while over the long-run the law of large numbers would average things out.

When betting with a bookmaker you have to understand that they want to make money in return for the service of accepting bets - this is called the Margin, Vigorish or Juice. The higher the margin, the lower your theoretical return; crucially the size of this margin varies a great deal among bookmakers, most of whom don't really want customers understanding this.

Cloudbet generally offers betting odds with a margin of just 2%, which is extremely competitive as the industry average is around 10%. That means an 8% better return.

We use this formula to calculate the margin which is essentially turning the odds back into probability and summing:

(1/decimal odds option A)*100 + (1/decimal odds option B)*100

**So with our example:**

(1/2.08)*100 + (1/1.87)*100 = (0.48*100) + (0.54*100) = **101.55%**

So with this calculation you can see Cloudbet's odds contain a margin of just 1.55% over a fair market of 100%. If the market has more than a two way result, simply add the other options in the same way.

With what you now know about betting odds you can:

- Calculate the probability implied by head-to-head form
- Turn probability into decimal odds, and the other way around
- Calculate a return on your stake from decimal odds
- Work out the margin implied by odds - essentially the cost of placing a bet
- Compare margins between bookmakers to work out where to maximise your profit

You can find another explanation of margin and calculating margin in this blog post here.