What is the house edge?

The house edge is a concept that seems to be defined a million times on the Internet, in a million different ways. Part of this stems from the fact that the odds and house edge have so many different names, and different ways to think about them.
It all comes down to math and two concepts: the odds and the house edge. Put simply (alright, not exactly) ‘odds’ are the chances of losing verses the chances of winning, in any given situation. The ‘house edge’ measures the theoretical commission the house earns by paying winners less than the inverse of the odds they must overcome. So the casinos are just shortchanging you with its ‘house edge’. For example, if you bet on two columns in roulette, the odds are 24 to 14 that you’ll win. The casino robs you of two dollars though, by only paying you $12 if you win, but still taking all $24 if you lose. So even when the casino has the odds against them, in the long run they manage to take just as big a commission.

Another theoretical number you hear the name of around the casino is the ‘return percentage’ or ‘pay out percentage’ (a familiar term to slots fans). Basically, the return percentage is just that, the percentage of the money bet that would be returned to the players, again if everything fell into a perfect statistical row. Return percentages are no mystery to slots fans, who know it is simply the compliment of the house edge. This just means that a 95% payout rate means 100 minus 95, or a 5% house edge. In games like blackjack and our old friend video poker however, the return percentage is a variable that changes with the quality of play.

The Vig, or Vigorish is a slightly different concept these days in casino gambling. The Vig is most often used to describe a fee the casinos charge on certain bets. In some instances, the casino applies a Vig as a bet is being placed, and therefore it is collected regardless of a win or loss, and other instances like in Baccarat, where a Vig is only charged on a win (the winning banker hand in baccarat).

House hold, or hold percentage is the real world equivalent of the house edge. If the edge were to be steady and all events were to go to a statistical T, then the hold and the edge would be exactly equivalent. It can often be confusing though, because for games like a slot machine where there is no variation, the hold actually is the real counterpart of the house edge, it’s simply based on tallies rather than probabilities. At the tables, considering video poker for instance, there is variance in play, which affects the amount of the edge the casinos are actually pulling at any one point in time. The hold takes on a slightly different meaning when it comes to the video poker machine, it is the amount of cash the casino actually keeps out of the total dropped in the machine. It is a counted real number, not a theoretical one such as the house edge, but it is directly analogous to it.