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Chances of going bust?


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Re: Chances of going bust? your chance of going bust (risk of ruin) is worked out with this formula Risk of ruin = ((1 - edge) / (1 + edge)) ^ bet units ie You have a 5% edge and you have a 100pt bank and risk 2% per bet = 100/2 = 50 bet units. Risk of ruin = ((1 - 0.05) / (1 + 0.05)) ^ 50 Risk of ruin = ((0.95) / (1.05)) ^ 50 Risk of ruin = 0.9048 ^ 50 Risk of ruin = 0.0067 or 0.67% So if you can constantly beat the market (bookie) by 5% your chance of going bust will be 0.67% As your betting bank increases this will gradually move towards zero if the same stake of 2% of starting bank is used.

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Re: Chances of going bust?

your chance of going bust (risk of ruin) is worked out with this formula Risk of ruin = ((1 - edge) / (1 + edge)) ^ bet units
That's if all bets are at odds of 2.0. If you bet at higher odds, the risk of ruin will be larger. If you have a 5% edge with bets at odds of 2.2, your risk of ruin if you start with a bank of N bet units and bet at level stakes is about 0.9202^N, compared to about 0.9048^N if your bets are at odds of 2.0. If N=50, this gives about 1.56% at odds of 2.2, compared to 0.67% at odds of 2.0. If your bets are at varying odds, it will be more complicated. It won't depend only on the average odds. Also, these figures assume you know your edge. In practice, the risk that you've overestimated your edge could be your most dangerous risk.
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Re: Chances of going bust?

Also, these figures assume you know your edge. In practice, the risk that you've overestimated your edge could be your most dangerous risk.
Just adding to that the fact that your edge will change over time. The problem is if it drops you won't actually know it does until you see the effects. So the question, "can my edge disappear ?" , is a substantial contributor to the risk of going bust.
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