Horse Racing

Guide to sound bankroll management

You might be an expert on your chosen sport, and you might be adept at digging out a value bet, but is that all you need to know to be a successful punter? Not quite. Bankroll management is one of the most important aspects of betting and without a solid plan to manage your bank, you could find that you fail to make a profit.

Bankroll Management First Principles 

The basic principle of bankroll management is defensive. Every punter has losing runs. The key is your ability to weather storm and stay in the game. Good bankroll management will enable you to do this, while also helping with the psychological aspect to betting. With a consistent bankroll management strategy, the decision of how much to stake on any particular bet is taken out of your hands, removing the risk of chasing losses or recklessness.

How Big is your Bank?

Most successful punters lose a lot of the time. They may profit in the long term but in the short term, results fluctuate. They are able to survive these fluctuations because they have an adequate betting bank, set aside from their daily finances. The size of your bank should be large enough to withstand a losing run. To work out how large, you can use one of the many losing run calculators available online, which will tell you how many consecutive losing bets you might expect by random chance and by applying this figure to the size of stake you will be using, you can estimate how big your betting bank should be. 

Level Stakes 

This is the simplest form of fixed staking system. With this system, you simply stake a fixed percentage of bankroll on every bet. As the bank grows, so does the size of your stake, and if you hit a losing run, your stake decreases proportionally.

The great advantage of level stakes betting is its simplicity. If you know the longest likely losing run you will encounter (as described in the previous paragraph) you can calculate the precise percentage value of your stake. For instance, if the longest losing run you can expect is twenty, you can make your level stake percentage 1/25th or perhaps 1/30th of your bank, depending on how much of a safety cushion you feel you need.

The Kelly Method

Of course, the drawback of the level staking system, or any fixed staking system, is that it is not particularly dynamic and may not maximise your potential profit, which is why many punters prefer variable staking systems, such as the Kelly Criterion.

This system was developed in the 1950s and is based around the theory that the size of your stake should match the degree of value in the bet. So, for example, if you feel the odds available on a football team winning a match underestimate their true chances by around 10 per cent, then using the Kelly Criterion, you would bet 10 per cent of your bank.

The drawback with this method is that your bank can dwindle quickly if you get your assessment of value wrong. That’s why many Kelly Criterion proponents use a Half Kelly or Quarter Kelly system, halving or quartering their stakes to reduce risk.

The Fibonacci Method

This bankroll management method has a sound mathematical heritage, owing its origins to the Fibonacci sequence of numbers created by the 12th century Italian mathematician of that name. A Fibonacci Sequence begins with numbers 1 and 2 and then adds the two previous numbers to provide the next. When using this method, your stake size is decided by the Fibonacci sequence of numbers, moving up one step with a loss and down two with a win.

As with all variable staking methods, this approach can lead to big losses, as the stake increases significantly with each losing bet, but if used cautiously, with an awareness of the potential risk, the Fibonacci Method is a dynamic bankroll management system that has the potential to generate significant profits.