Two things can lead to long-term profitability when betting. The first is the concept of value. That is, you bet on selections at odds greater than what the true odds should be.
For example, a horse at odds of 4.00 is deemed to have a 25% chance of winning. If your research determines the horse has a 34% chance of winning, the above becomes a value bet.
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The second law of profitable betting involves bankroll management. More pertinently, developing a staking plan. This is the process of determining how much to bet on each selection.
There is a myriad of weird and not-very-wonderful staking methods. We’re here to tell you that flat and percentage staking are the only two you should be concerned with. In this article, we compare the two to discover if one is superior to the other.
What is Flat Staking?
Also known as level staking, this is a method of betting that involves placing the same sized bet on each selection irrespective of the odds. For instance, say your bankroll is £1,000 and you decide to break it up into 100 units of £10 apiece. You bet £10 on every wager whether it is 1.72 or 25.00.
In theory, it makes sense because if you are confident of a selection, why not keep your stakes the same? However, if you bet long odds a lot of the time, the risk of a lengthy losing streak breaking your bank increases.
On the flipside, it also doesn’t make sense to decrease stakes according to the odds. Why are you placing the bet in the first place if you have so little faith in its success? If you are continually making value bets, reducing stakes risks leaving money on the table.
What is Percentage Staking?
Also known as proportional staking, this method involves calculating stakes as a percentage of your bankroll. As a consequence, your wager size will increase as your bankroll swells, and decrease as it falls.
The Kelly Criterion is the most famous type of percentage staking with its proponents claiming that it is the most efficient way to grow your bankroll. The trouble with Kelly is that you must be very accurate when determining your ‘edge’ or else the entire house of cards collapses.
As you can guess, the main appeal of percentage staking is its ability to substantially increase your bankroll in a relatively short time in comparison to flat staking. Theoretically, you can’t go bust when betting proportional stakes since you are only ever betting a percentage of your stake. Of course, things will look very different when down to your last $1!
Which One Is More Profitable?
The only way to compare the two is if you place them side-by-side with the same bets at the same odds in sequence. If your bets are profitable, percentage stakes will involve a much higher total stake turnover. Therefore, the fairest way to compare the two is actually in a Return on Investment (ROI) sense.
Let’s say you made 5,000 one-unit flat staking bets and achieved a 440-unit profit. Your ROI would be 8.8% (440 x 100 = 44,000/5,000). Using the same odds, you could get a profit of 2,462 units from percentage staking but bet a total of 33,699 units. The ensuing ROI is just 6.85%. Therefore, percentage staking earned a great profit, but you had to risk far more to achieve it.
With proportional staking, things go very well when you are on a winning streak. Imagine the following scenario where you win six bets in a row:
- Bet 1: Odds of 3.00
- Bet 2: 2.50
- Bet 3: 4.00
- Bet 4: 2.00
- Bet 5: 7.00
- Bet 6: 3.50
Let’s say you have 50 units of £20 each for a bankroll of £1,000. You will be up 16 units or £320 after the six bets above. For bet 7, you will wager £20 as usual, happy that your betting bank has increased reasonably. It is a little different when you try a percentage staking plan. You bet 2% of your bankroll on every bet.
- Bet 1: Odds of 3.00. Bank = £1060
- Bet 2: 2.50. Bet £21.60 and your bank increases to £1114
- Bet 3: 4.00. Bet £22.28 and your bank goes to £1203.12
- Bet 4: 2.00. Bet £24.06 and your bank goes to £1251.24
- Bet 5: 7.00. Bet £25.02 and your bank goes to £1426.38
- Bet 6: 3.50. Bet £28.53 and your bank goes to £1526.23
You earn over £206 more profit by following proportional staking. Your ROI in this (extreme) example is 371.92%. With flat staking, your ROI is ‘only’ 266.66%. However, it is only during winning streaks that percentage staking comes out on top.
Lengthy winning streaks are rare for any bettor. Professional gamblers live in and around the 3% ROI mark and usually opt for the Asian markets and wagers priced close to 2.00. In other words, losing streaks are the norm rather than winning streaks.
Overall, flat staking appears to be the better option when the Law of Large Numbers is taken into account. This states that as your betting history gets longer, your chances of profitability diminish.
Let’s say you hold a 2% edge and bet at odds of 2.00. After 1,000 bets, there is a 27.47% chance of not being in profit with level stakes and a 38.86% chance of being at a loss with percentage stakes.
If you have a 10% edge and bet at odds of 2.00, your chance of NOT being profitable with flat stakes after 1,000 bets is just 0.08%. It rises to 5.73% with percentage stakes.
In summary, flat staking is a better option in the long-term. You can also do compound staking to boost profitability. It is a form of flat staking that involves slightly increased stakes once you get to a certain point. For example, if you bet 1% of your £1,000 bankroll, a unit is £10. You can pledge to increase it to £11 per unit when you hit £1,100, £12 at £1,200 and so on.
The main reason why percentage staking is inferior to flat staking in terms of ROI and likely long-term profitability is that you need a larger percentage growth to recover previous losses. For instance, if your 100-unit bankroll falls to 95 units, you need a profit of 5.26% to get back to 100 units when flat staking.
With percentage staking, your next bet in the scenario above would be 4.75 units (if your percentage is 5%). If you win at odds of 2.00, you would still be 0.25 units shy of 100. With flat staking, you would bet 5 units and end up back at 100 units if your even money shot wins.
Basically, no matter the odds, when you lose using percentage staking, it takes longer to recover your money, and when you win, it takes less time to be dragged back to parity after a losing streak.
On the other hand, if you are a consistently profitable punter, percentage staking will work better. Your ROI may be lower, but your total yield will be higher. As with everything else in sports betting, it is a case of comparing risk and reward before proceeding.