Understanding hedging is to think of it as some form of insurance. The concept behind this approach is to protect your bets against losses.
For a better view take for instance there is a match between team A and team B, the bookmakers have released the odds. You decide that since the odds are highly placed for instance $9.00, you placed $100. If you bet on team B and they do well through the group stage and knock out rounds and makes it to finals but up against another team C. The bookmakers offer odds for the teams as Team B and team C as $1.4 and $3 respectively. This where hedging arises.
You have three options available, first, let your initial bet continue to run as planned and win a profit of $800.
The second option is to insure the initial bet against potential loss, i.e. covering your critical bet. To achieve this divide, your initial bet against the odds given on the opposing team. To ensure this, your initial bet ($100) is divided against the other team (Team C @ $1.4) to give you a value of $71.43.
If team C wins, you have insured your initial bet ($100).
The third option, the most important is the method that is quite useful, you can change the amount as you deem fit so you come with a win either way. Let’s go through the formula which will calculate how you can maximize your profit.
Example let us say you placed a $140 bet that France win beat Holland in a World Cup at odds 1.56. France performed poorly, but run score a lone goal against the runoff. Their odds now changed to 1.18. This odd movement has created an avenue to trade the market and lock in a guaranteed profit. To achieve this, make a lay bet of $185.08 on France at odd 1.18, if you decide whether to allow your bet ride a profit of $78.40 and lose your bet if France lost the match or hedge your bet to guarantee a $45.08 profit, irrespective of the outcome.
Now, you have a basic knowledge of what hedging is all about, you can apply this strategy to any market to either lock in profits or reduce your risk. Hedging enables you to minimize your risk but will reduce your potential returns on investment. The choice is yours to decide, the trade-off between risk and reward you have a trade.
Hedging takes advantage of reactions of traders, situational factors, odd movements. You can use this method with any reliable bookmakers.
Hedging has its terms and terminologies have a proper understanding of what they mean and how to apply them as this will reduce making wrong choices.
It helps to minimize your potential exposure though your return is reduced.
In summary, hedging is a form of betting, there are many others, making choices will depend on your understanding, knowledge, and suitability.
Please be a responsible gambler.