The casino house edge is the best indicator for deciding which casino games offer the best odds for gamblers. In order to understand the house edge, we must look at other common gambling terms like the payout ratio and game odds. These are all factored together to determine the house edge and hold.
What do these terms mean? They can seem a bit confusing to the newcomer, so we have described each one below with examples of how they are calculated.
The payout ratio, often just called the payout, refers to the amount of money, relative to your initial bet, that will be rewarded upon a win. For example, a gambling event may payout 5:1. This means that a $1 winning wager would profit $5 with a $6 total payout.
The potential profit of any bet can be calculated from the payout ratio using the following formula:
Profit = [(a + b) x wager] - wager; where the payout ratio is a:b
The win rate is the same thing as the odds of winning and is usually reported as a fraction or percentage. For example, in craps there are two dice rolled and 36 possible combinations. Six of these combinations would produce a seven, making there a 6/36 or 16.67% chance that betting on a seven would win.
*Note: the odds are a fixed mathematical certainty and do not change based on previous outcomes. Popular gambling theory like the Gambler's Fallacy suggests an expected outcome that does not occur is more likely to occur in the future. This is not true; every turn is an independent event.
The house edge is the casino's advantage and will give you the best measure of the overall game odds. The payout and win rate are both taken into account when determining the house edge. The easiest way to explain it is to show an example.
In single-zero roulette, there are 36 numbered slots on the wheel and one green slot, making 37 slots total. The green slot is what gives the casino its advantage. The payout ratio is determined using the following formula:
36/n, where n = numbers that define a win.
For example, betting on numbers 1-12 means there are 12 possible numbers that would win; n = 12. The payout is calculated by 36/12 = 3; the payout ratio is 3:1.
Next, you determine the expected return. The expected return is simply 36/37 but can be applied to each bet using the formula:
(n/37) x (payout) = average return, or (n/37) x (36/n) = average return.
As long as n is greater than 0 (remember, n = numbers that define a win), the average return is always less than 1, in this case 36/37, or 0.973. This does not change with any bet in roulette, although it can be bet-specific in casino games like craps. At some online casino sites and gambling websites you might see this worded, "We payout 97.3%!" This is in reference to the average return.
The house edge is calculated by subtracting 1 from the average return. For example, in single-zero roulette, the house edge is 1 - 0.973 = 0.027 x 100% = 2.7%. This means that for every $100 wagered in roulette, the casino will keep $2.70 on average.
The hold, also known as the hold percentage, is commonly confused with the house edge. The hold is the average percentage a player's money originally brought to the table that is kept by the casino. For example, even though the house edge is only 2.7% in single-zero roulette, a typical hold may actually be around 12.8%.
A 12.8% hold would mean that if a player had brought $100 to the table, the casino kept $12.80. The 12.8% hold implies that the player bet his total $100 five times [100% - (100% - 2.7%)^5 = 12.8%]. The hold represents the actual profit for the casino and factors in the payout, odds, and house edge.
These terms can be confusing, but they paint a clear picture of how both gambling sites and land casinos have an advantage. One thing we do see is higher payout percentages with slots at some of the best online gambling sites due to a lower overhead charge of operation. Table games, however, have fixed house edges which cannot be eliminated no matter what strategy is used. Please keep this in mind and always remember to gamble responsibly.