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Fixed Odds Explained

Fixed odds betting has been around for a long time, and for many of us the first introduction to betting was in horse racing – ( well it was for me anyway!). Odds were quoted as 2/1 or 3/1 for a horse to win a particular race, often called a win single, the simplest of all bets. The odds reflect what the bookmaker thinks are the chance of the horse winning. Now, one important point before we go on, odds and probability are often confused by novice and inexperienced traders, and most seem to think they are the same thing. They are not, they are closely related of course, but they are different. Probability is the chance that something will happen or not, and has a range between 0% and 100%. Odds however are used to express a ratio between the probability of an event happening or not happening. If we take the simplest example of tossing a coin, we know that the chance of a head or tail is exactly 50% as there are only two possible outcomes, so we have a 1 in 2 chance of choosing correctly. If we express this as odds we get 1/1 which is known as even money.

If we go back to our example of the horse at 3/1, to convert this to relative probability, we turn the odds upside down, add one to the bottom, and multiply by 100 to convert to a percentage. The probability for us to win is  therefore ( 1/(3+1) *100 %) which is 25%. In other words, if the race were run four times under identical conditions, the horse would be expected to win once. If we decided to back the horse with a £5 bet, then if the horse wins the race, we would win £15 ( 3 x £5) plus our stake back, so we would receive a total of £20. Now the important thing to note, although it’s an obvious point, is that once you have placed your bet, there is nothing else you can do – you either win, or lose. This is the essence of fixed odds betting – there are only two outcomes to the bet. Finally, one other point – at the time of writing all profits in the UK are tax free, but please check in your own country for detailed information on local tax laws.

In principle, odds are expressed in three different ways, depending on where you are in the world. These are fractional odds, decimal odds, and money line odds.

  • Fractional Odds – these are the odds formats favoured by bookmakers in the UK, Ireland and Australia. Fractional odds quote the net amount to be paid out to the bettor, should he or she win. So a bet of 4/1 ( four to one against ) will always pay four times the bet amount, plus you receive your original stake back. If you bet £10 to win, you would receive £40 plus your £10 stake. Had the odds been reversed and read as 1/4 ( four to one on), then you would receive one quarter ( i.e. a fraction ) of your bet should you win. So had you bet £10 at 1/4, you would receive £2.50 plus your stake of £10.  The fraction represents your winnings or profit, so to calculate the profit on a bet using fractional odds, all you do is multiply your stake by the odds – remember your stake will always be returned in addition.
  • Decimal Odds – these odds formats are often called continental or European and the format is most widely used in Europe and Canada. Decimal odds are favoured by betting exchanges as they are the easiest to work with in fixed odds trading. The major difference from fractional odds, is that decimal odds represent your total payout, INCLUDING your stake. To convert fractional odds to decimal odds, simply take the fraction, divide the top by the bottom and add 1. In the example to convert  4/1 , we divide the top by the bottom, which gives us 4, convert to decimal 4.0 and add 1 to make 5.0 -so 4/1 in decimal is 5.0. Similarly 1/4, is 0.25 then add 1.0 to give 1.25. To calculate our total return on a bet, just multiply our stake by the decimal, so a £10 bet at 5.0 ( or 4/1 ) gives us £50, and we deduct  our stake ( £50 -£10) to arrive at our profit of £40.
  • Money Line Odds – these are favoured by American bookmakers, and used widely in sports betting. They are similar to fractional bets in that they show the profit on the bet, which is then added to your original stake to arrive at the total payout. Money line odds are quoted with both positive and negative figures. A positive figure is an ‘odds against’ bet, and negative an ‘odds on’ bet. To convert a money line bet quoted at +400, simply divide by 100 and add 1, so in this case this is 5.0 decimal, which is 4/1 fractional. if the money line is negative, first remove the sign, then divide 100 by the money line figure. If we take -400 as an example, then 100/400 gives us 0.25, and we then add 1 to arrive at 1.25 ( our 1/4 fractional bet). To calculate your profit on a +400 money line bet, simply take your stake £10, and divide by 100 which gives us 0.1. We then multiply this by the money line odds of +400 which gives us £40, our profit.