Most gamblers here will be familiar with the terms in the title, but beginner's may be yet to grab the concept of house edge and Return to Player.
I've been taking more of an interest in gambling and how it works. As someone who is new to gambling, there is a large variety of games available to play and each offers different RoI (Return on Investment). However, it's important to understand how each game works and weigh your chances of winning, this would help you properly manage your gambling activity and minimize losses.
Each gambler wants to get profits off their wager and so also do the gambling platform (online or in house). So while the gambler looks for the best strategy to win, the house sets the best algorithm to ensure that they stay profitable while allowing enough winnings to keep gamblers coming back. This is done through the house edge (or percentage)
What is House Edge?This can be said to be the edge the gambling platform has over the players, it entails that even though players would win in the short run the house would make more profit in the long run. The house edge is the statistical advantage the house has over the players to ensure profitability.
How is it calculated?
The house edge is calculated by finding the product of the the probability of winning and the total pay out.
Let's use a dice as an example; a standard dice is in the shape of a cube with 6 sides each having different number of dots, from 1 to 6. If a player bets that on a roll of the dice it would land with the number 2 topside and wagers $1 to win $4 (+their deposit = $5). The probability of winning is 1/6 or 0.1666, and the total winning is $5. So the house edge is calculated by multiplying the probability by the payout and then subtracting it from 100% = 1/6 × $5 = 0.8333 or 83.33%; this is the
return to player percentage, i.e the possibility of the player winning.
The house edge is calculated by subtracting it from 100%.
So an RTP of 83.33% would give a house edge of 16.67% of the wager. So even with a couple of winnings by players, the house has a predictable advantage in the long run.
Another example would be a flip of a coin. The probability of landing a head is 1/2 or 0.5. If the house pays $0.80 on each successful bet of $1, that means a total payout of $1.80 (the profit + the wager amount)
The RTP would be equal to the probability multiplied by the payout = 1/2 × $1.80 = 0.9. Giving an RTP of 90% and a house edge of 10%.
So the house edge can be said to be the reverse of the RTP.
Another notable term when discussing fairness in gambling would be the Hit frequency:
Hit frequency is an algorithm used by gambling houses to ensure profitability. It is the number of times or the frequency at which a gambling machine would give a winning combination. So if it gives a winning combination 20 times on each hundred trials then it has a hit frequency of 20%. It's worthy to note that machine games which has a lower hit frequency offers a lower winning potential but usually gives a higher payout (jackpot) than those with a higher hit frequency which offers a higher winning potential but gives a lower payout.
Also note that gambling houses do not have arbitrary power to set this percentages, it has to within the accepted range in their location to ensure fairness.
