The House Edge Explained

The common mistake most novice gamblers make is that they misrecognise what the casino really is. It might be treated as a theme park, an adult-version Disneyland. The problem arises when players fail to see that the casino is a business. And being a glamorous business, their aim is of course to extract money from their customers.

Cheating is of course not the way in which casinos profit from the games. The structure of the games takes care of that. One has to remember that in each game, there is a built-in profit for each bet, called the house edge.

To properly understand this concept, let us first venture into the concept of odds.

Each bet you make entails a certain probability of winning or losing. On a game of coin flipping, for example, the probability of winning is always 50%, given that the coin is fair. This is called as even money bet, since there are equal probabilities of winning and losing.

The most appropriate payout would be to double the amount you bet each time one wins: if you bet a dollar, you should be paid a dollar. This type of payout which is equivalent to the probability is called true odds. However, if you only win 95 cents for each dollar bet, there would be a house edge of 2.5%.

The house edge, therefore, is equivalent to the difference of the true payout or odds with the payout that you receive when you win.

Let us look closer at this phenomenon in the case of casino roulette. In the double zero roulette game, there are 38 numbers (1-36, plus a 0 and a 00). The probability of a win therefore is one in 38. The true odds would thus be $37 for each dollar bet. Most casinos, however, pay $35 for each dollar bet. That means that you get $36 total, netting the casino a $2 profit.

To understand it further, think of it this way: if you bet a dollar on all the 38 numbers of the roulette, you would be losing two dollars instead of reclaiming all of the $38. To compute for the house edge, we get the difference of the true odds and the payout given by the casino and divide it by the true odds. Thus we 2 by 38 and we get 5.26%.

Having the house edge doesn't mean that you lose each time you play. Otherwise it wouldn't be fair to anyone. But if one looks at it in the long run, then the casino would surely profit more than what they lose. Understanding the house edge would help you create the proper strategies for the games.