Page 26 - August 2012 • Southern California Gaming Guide

Bill Burton: About Gambling
THedging Your Bets
he other day, I was watching a news story on the nancial news network. It was an update about a major banking company that reported earlier this year that their traders had incurred losses amounting to billions of dollars in their trading division. e losses were due to a failed
hedging strategy used by one of the traders at the rm. e latest news story estimates that the loss will be close to $7 billion dollars instead of the $2 billion rst reported.
I’ve been around gambling and gamblers for close to three decades and I have known or heard stories of some gamblers who have won and lost more money than most of us will see in a lifetime. However, none of those amounts have been anywhere close to the billion dollar mark.
ere are a couple aspects of this story that I found truly amazing, besides the staggering amount of money lost. In the past, I have written about the similarities between casino gambling and options trading and this story touches on many of the points.
Risk Management
First of all, you would think that nancial institutions trading this amount of money would have a better risk management procedure in place to insure against this type of loss. e rst thing I learned about options trading and casino gambling was that money management was the most important principle to keep from going broke.
e other thing that came to mind is the banking institution probably employs some of the smartest traders, but they learned
what many gamblers discover
lead to his writing of Traite du Triangle Arithmetique, which was the rst book on
probability theory.
Albert Einstein studied the problem
of how to beat the game of roulette. After spending time on the problem, he concluded
that it could not be done, and he was quoted
as saying, “ e only way to beat roulette is to steal the money when the dealer’s not looking.” His point was that there is no way to employ some mathematical con guration of bets to overcome the house edge.
Gambling systems based on raising and lowering your bets are sometimes referred to as money management strategies. Most systems fall into three categories,
cannot get wiped out by a
single loss, but you can still
lose over time.
Hedge Betting.
When you use a hedge system you are making two bets that o set each other to help reduce your risk. You are
hoping to grind out a small pro t. Hedge betting is sometimes called Insurance Betting.
e most popular hedge bet in the casino is the Insurance bet in the game of Blackjack. When the dealer’s up card is an ace you have the option of making the insurance bet. You are not really insuring anything, instead you are just making an additional bet on whether the dealer has a Blackjack or not. e bet pays two to one and you can bet half of your original bet, so if the dealer does have a Blackjack, you win the bet and you break even. If the dealer does not have a Blackjack, you have lost half your bet. You then must play out your original hand that may possibly lose. e problem with hedge betting is that you are not taking away all of your risk. You can still lose in the long run.
If you have a Blackjack and the dealer is showing an ace,youareo eredevenmoneyforyourBlackjack.If you take even money and the dealer has a Blackjack, you still won the amount of your original bet. is is actually a true hedge bet because you are not putting up any additional money — you are just taking less for a win.
If you trade stock options using a betting system, or just enjoy playing casino games, the story of the $7 billion dollar loss should be a reminder of what can happen when you don’t have a plan to manage your risk.
Until next time, remember: “Luck comes and goes.. Knowledge Stays Forever.”
Bill Burton is the author of 1000 Best Casino Gambling Secrets and Get the Edge at Low Limit Texas Hold’em available online at billburton.com. Burton is also an instructor for Golden Touch Craps: thecrapsclub.com.
a negative betting progression, a progression or a hedge betting system.
positive
betting
Money Management Strategies
Negative Progression Systems. A negative progression system has you increase your bets after a loss, in hopes of
getting back to even after a win. ese negative systems are extremely dangerous because you can lose your entire
bankroll after a series of losses. e most well-known of this type is the Martingale system where you double your bet on each loss hoping to eventually winandbreakeven.Astring of losing bets can quickly wipe
you out.
Positive Betting Systems.
e ultimate betting strategy is to bet more when you are winning and less when you are losing. is is easier said than done because you never know when a streak occurs until it ends. A simple way
the hard way. ere are no perfect risk-proof betting or trading systems that will win every time. When you come right down to it, the trading at this nancial institution was nothing more than some very high-stakes gambling gone terribly wrong.
For as long as people have been gambling, someone has been trying to develop a system that will make them rich. Some of the greatest minds in history have tried to devise a system for beating casino games. Pascal and Einstein come to mind.
“For as long as people have been gambling, someone has been trying to develop a system that will make them rich. Some of the greatestmindsinhistory have tried to devise
a system for beating casino games. Pascal and Einstein come to mind.”
Although he was not a gambler, in 1654, French mathematician Blaise Pascal was asked by a friend for help with a wagering proposition. Pascal became interested in the philosophical problem of how to make decisions involving uncertain events. His studies
to bet more when you are winning is to progress your bets slowly after a win, and decrease your bet to the minimum when you lose. is is known as a positive progressive system. With a positive progression you
PAGE 26
SOUTHERN CALIFORNIA GAMING GUIDE
AUGUST 2012