What Volatility Means With Examples From Roulette and Other GameBy: Mark Freedman, Wednesday September 10th 2014
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In the online casino world, or any type of gambling for that matter, there are two terms that define your bankroll management strategies. Those terms are the house advantage of the game and the volatility. We're going to focus on the volatility. This has to do with how distributed the payouts are of any given game. There are some great examples of this in European roulette because all of the payout rates of all of the possible bets are the same, but the volatility of those wagers can be a lot different.
To begin, let's look at a bet on red. For this bet, a total of 18 numbers win and 19 numbers lose, so you have a game that's not going to have particularly long winning or losing streaks if you only use these bets. However, you can compare this to a straight-up bet in the same game. In this situation, 36 numbers lose and only one wins. However, the payouts have been adjusted so that you'll have the same average house advantage with this much more volatile bet. As you can see, the volatility would change your bankroll management guidelines because you're going to be a lot more subject to streaks in the second type of bet.
The basic idea is that the higher the volatility, the more of a cushion you need in terms of the number of bets you use. So if you have a $100 bankroll, making $1 bets with a low volatility would mean you need to make bets in the range of $0.25 with a high volatility to maintain the same risk of ruin. It's really all about pairing up volatility and risk tolerance and making sure that the two match up in a way that makes sense.
So suppose you're a slots fan. When you play games with high volatilities like progressive slots with few lower or medium payouts, then you'll have to adjust your bet size to be smaller than when you play games with a lower volatility like video slots that have a more balanced payout schedule. Overall, you're going to have the same risk of ruin but a smoother time with fewer big swings with the second game, so you can bump up your bet size a bit with the second type of game, and you'll have a more fun time as well.
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