How the conversion works
For decimal odds greater than 1, divide 1 by the odds. Odds of 2.00 correspond to 0.50, or 50 per cent. Odds of 4.00 correspond to 25 per cent.
A lower implied probability corresponds to higher decimal odds. The relationship still establishes nothing certain about the actual event.
| Decimal odds | Calculation | Implied probability |
|---|---|---|
| 2.00 | 1 ÷ 2.00 | 50% |
| 4.00 | 1 ÷ 4.00 | 25% |
| 5.00 | 1 ÷ 5.00 | 20% |
Why the total can exceed 100 per cent
In a model with exhaustive, mutually exclusive outcomes, the actual probabilities add up to 100 per cent. Implied probabilities from quoted prices do not necessarily do so.
Suppose three exhaustive alternatives have decimal odds of 2.00, 3.00 and 5.00. The conversion gives approximately 50.00 + 33.33 + 20.00 = 103.33 per cent. The excess of about 3.33 percentage points is often called overround.
Overround describes the pricing in this example. It is not automatically the operator’s realised profit margin or a certain loss percentage on each individual bet.
Actual probability needs a separate assessment
The probability of a future outcome cannot be observed in the same way as a published price. It must be estimated, and the estimate may be wrong. Removing a margin from prices does not make an estimate true.
Historical outcomes can provide information, but selection effects, changing conditions and random variation affect the conclusion. Small samples are particularly sensitive to chance.
Percentages and rounding
Rounded values are easier to read but less precise. Adding rounded percentages may therefore produce a different total from a calculation using full precision.
Rounding amounts can also change a financial result. It should not be presented as a guarantee of a particular net outcome or of how an external operator will assess an account.
Read the number alongside its assumptions
Distinguish a price, its implied probability and an independent forecast. They answer different questions.
The examples here explain mathematics. They are not current odds, a recommendation to gamble or a model for guaranteed returns.