Drawdown in sports betting

Most bettors focus their attention primarily on the amount of possible winnings on the bet. However, it is also important to think about how much a loss can turn out to be. The concept of drawdown is widely known in the financial industry, but how does it apply to the sphere of betting? The answer is in our article.

What is drawdown and max drawdown?

As defined by Investopedia, drawdown and maximum drawdown are, respectively, the decline (as a percentage) from the peak to the lowest point during a given investment period and the largest decline (as a percentage) from the peak to the lowest point until a new peak is reached.

Since the same principle of evolutionary development applies to a player's betting history as in the case of financial investments, these concepts can be directly correlated to the world of Parimatch betting.

It is reasonable to assume that the maximum drawdown is comparable to the maximum reduction in bankroll that a player could tolerate. Experts determine this figure at 50%, although this value is purely subjective. Consequently, it would be useful to model the expected size of the maximum drawdown in order to manage the risk at the time of betting.

Factors influencing the drawdown maximal drawdown

Let us define a number of factors that affect the size of the maximum drawdown. Not surprisingly, the higher the profit (and return) expectations, the lower the expected maximum drawdown. Similarly, players betting with higher odds are subject to more variance and higher risk of significant bankroll fluctuations, and therefore in their case (all other things being equal) the expected size of the maximum drawdown will also be larger.

The expected size of maximal drawdown increases with the logarithmic rate as the number of bets increases. For example, for simple special bets with the probability of both results 50/50 the expected duration of the longest losing series in 2n bets is approximately equal to n.