Payout Percentages at Online Casinos

The concept of the payout percentage is one of the concepts surrounding online casino play that elicits the most confusion among players about what it actually means and how it’s actually applied. When you start throwing in other terms like variance, volatility, RTP (return to player) and house advantage, it starts to seem like there are more numbers involved that you can keep up with.

To help you navigate your way through these terms, we’re going to break down what all of them mean while providing you with a simple, concise mental framework for understanding how they all come together to tell you everything you need to know about the games you might be considering playing. We’ll touch on:

The Concept of the House Edge

Everyone knows that the house has an edge against the players, on average, in the casino as a whole. There are some bets and wagers that come up from time to time in certain situations where the players might have an advantage. One example of that is in full-pay Deuces Wild games where perfect play gives you a small edge over the casino. Another example might be a progressive jackpot that has grown to be so large that it’s a profitable wager, on average, to play.

Even with those exceptions, it’s understood that the house has an advantage. This means we need a way to express that advantage, and we do that through the idea of the house edge as a percentage of our bets. We do this by working out the mathematical percentage, on average, of what we’ll lose for every $100 that we bet.

For example, if we’ll lose an average of $2 for every $100 that we wager in a game, then the house advantage is 2 percent.

It’s a very straightforward concept to understand, but it can be the cause of a lot of confusion if it’s not outlined in a clear way like the above.

The Relationship to the Payout Percentage

A related term that you’ll see used quite a bit is the payout percentage. This is the percentage of the player’s bets that he or she will expect to win back, on average. The payout percentage is really just a sort of complement to the house edge.

If you’ll lose an average of $3 for every $100 that you wager, then that means you’re getting back $97 for every $100 that you bet on the games. This tells us that our payout percentage is 97 percent. You also see that the house edge is 3 percent, so you can see how these two numbers are related.

For every $100 that you wager, on average, the part that you get back is the payout percentage, and the part that the house gets is the house edge.

RTP vs Payout Percentage

RTP is an acronym that stands for “return to player”. It’s a term that you’ll see used a lot in certain situations, and it means the exact same thing as the payout percentage. If you’re playing a game and expect to get back $99 for every $100 that you wager, the RTP of that game is 99 percent (just like the house edge is 1 percent). However, while RTP and payout percentage are synonyms and represent the exact same value, there is a particular time and place to use RTP instead of payout percentage.

The convention used in the gambling world, both online and in land-based game, is that the return from slots is referred to as the RTP. For all other table games, the term “payout percentage” or “payout rate” is preferred.

It’s not entirely clear why this is the convention, but it is clear that the convention does exist, and that’s why you’ll see one term used in some situations with the other term used in others.

Insert Volatility: What is It?

We primarily use two values to describe a casino game in numbers. The first is the payout percentage (or RTP if it’s a slot), which can also be described in a way with the house edge. The second value, however, is a bit different, and it’s known as the variance. Variance is a statistical term for a certain number that tells us, in simple terms, how large our average swings will be when playing a certain casino game. Variance is a number, and the larger the number, the larger the degree of variance.

To simplify what the number value of the variance is telling us, largely because we can’t be expected to all take a university course on statistics just to know what all of these terms mean, we use something called volatility to describe how big the swings are in our games.

A low volatility means low swings that are fewer and farther between, and a high volatility means a lot of large swings that come very often. We can also have medium-volatility games and everything else in between.

Payout Percentage vs. Volatility

So on one hand, you have the payout percentage of a game, and that tells you what your average return will look like from playing the game. On the other hand, we have the volatility, which describes what our swings will be like and how frequently they will come during our play. The question that a lot of players ask at some point is how these two values are related.

coin-flipThe answer to that question is better understood through a example. Let’s say that we’re going to play a game where we flip a fair coin. If heads comes up, then you lose $5, but if tails comes up, then you win $5. It’s clear that the payout percentage of this game is zero because the game is fair. It’s also pretty clear that you won’t have swings that are too crazy because it’s unlikely that you’ll lose several times in a row all that often. This means that it has a low volatility.

Now let’s suppose that we’re going to play a different game where we try to guess a random number that has been generated by a computer from 0 to 100. If we guess the number incorrectly, then we lose $1. However, if we guess the number correctly, we win $100. This game will have a payout percentage of zero because it’s completely fair (there are 101 total numbers to guess from, so on average we’ll lose $1 a total of 100 times for every time that we win $100 once).

With that having been said, our volatility in the number guessing game will be much higher because we have much higher chances of hitting frequent swings where we lose several times in a row. From this example, you can see how volatility can change without affecting the payout percentage of a game at all, and the point is that, while they do have a sort of relationship in that they can be used to describe the nature of a game, the two values themselves don’t really affect each other directly in any way.

Jesse Eddleman is an online gambling expert who has been writing full-time in the industry for more than half a decade. You can keep up with him on Twitter and Google+.

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