Every online gambler knows about the house edge. The house edge is the casino’s way to collect revenue, from which it can then finance its activities, continuing to offer gamblers the games they love. The house edge is an accepted thing in gambling circles. It’s not even viewed as a necessary evil, after all without the house edge, there would be no online or live gambling. In poker, the equivalent of the house edge is the poker rake. In online poker there are all sorts of sign-up bonuses and poker rakeback deals that can be used to reduce the negative effects of the rake. In online gambling, players can also resort to sign-up bonuses, and there are even loyalty deals which mimic the way poker rakeback deals work, in the sense that they reward players according to the amount of action they generate.
As I said above, all gamblers know about the house edge and they also know about the fact that the presence of the house edge means their wagers will carry a negative long-term expected value. Therefore, it is only through the variance that they will ever be able to generate profits. Most of those who are aware of the presence of the house edge and its long-term effects, think that they know precisely how the house edge works. Unfortunately, there are few people truly understand what the house edge induces and how it works its magic in favor of the casino. It is fairly straightforward to assume that a 5% house edge in a given game will result in an exactly 5% long-term loss for the player. Unfortunately, the mathematics concerning this system are much more deceiving than that. The 5% house edge is only a catalyst which kick-starts a chain reaction that will lead to a much larger profit margin for the house. As a savvy gambler, you need to understand perfectly how the house edge works so here goes: let’s take a look at an actual example, since there’s no better way to illustrate things than through an example. Let’s consider that you walk into casino with a $10 bankroll.
Your intention is to place 10 one dollar bets, on a game which features a 5% house edge. Now then, before we go any further with this, let’s make one thing clear: the house edge is a long-term edge, which means that it doesn’t actually show up on every single bet that you make. You can theoretically place 100 bets and win every single one of them, in which case the house edge never really surfaces. Also you can lose 50 or 100 straight bets too, in which case the house edge will be 100%. The 5% house edge that the game features needs a minimum sample size of several hundred bets to actually appear in its true shape. But since in the end it will always level out to 5%, for the theoretical purposes of this here example we can safely assume that it shows up in its true form on every single one of the 10 bets that you are about to make. That would mean a loss of five cents on every single one of these bets, which would amount to a total of $.50 lost after 10 bets. That does indeed represent 5% of your initial bankroll. You still have $9.50 left though, so you may well decide to keep on playing. After another sample of 10 bets, you register another $.50 loss. Your total losses will thus reach the one dollar mark, which is exactly 10% of your initial bankroll. The longer you keep playing, the bigger the percentage of the bankroll that you’ll give up to the house.
If you play long enough, eventually you are guaranteed to drop your entire bankroll. Most players do know when to stop though so on average they don’t give up more than 30% of their bankroll. This 30% loss is called the house drop. It is the house drop that you should fear, not the house edge. The house edge merely serves to induce the house drop, and you won’t really see the average house drop advertised on games anywhere. Every professional online poker player protects his bankroll by making use of poker rakeback deals. The best of these guys become poker props, thus lending deals which give them massive rakeback percentages, of around 100%. Some of these guys even end up getting paid to play.