Here's how it works:
A casino earns money by paying winners at "house odds." This an amount that is slightly less than the true odds of winning the contest. Let's say we're flipping a coin and the bet is one dollar. The true odds are 1 to 1. Both sides are evenly matched.
However, the house odds might be only 0.95 to 1. In other words, a loss to the casino costs $1, but the casino will pay only 95 cents when a player wins. That's the house edge. Typically, a casino shifts the odds of winning rather than payoff, so the payoff is 1:1 in games like blackjack and roulette, but the true odds favor the casino. For example, in American roulette, the true odds of winning on red is 0.9:1.
Sometimes professional gamblers can use strategy to change the true odds and shift the edge away from the casino, but it most situations the casino has an advantage.
If a game has a 5% house edge, then gamblers (as a group) will usually lose $5 for every $100 wagered over time. Of course there are fluctuations; some people win and others lose in the short run, but casinos always win in the long run (if the contest has a house edge). The house edge on slots is typically 5% and up. The house edge on craps is anywhere from 0% to 17% (depending on the particular bet). Baccarat is about 1%. Blackjack is 1% to 3%. Caribbean Stud Poker is about 5%. These numbers vary depending on the strategy a player uses. A lower edge is obviously better for a player, but the best situation is no house edge, or an edge against the house. You'd be surprised how often that can happen. And you'd be shocked to learn how many people simply throw away their edge.
Video poker is an excellent example. Players can get an edge by using optimal strategy, but most gamblers don't bother to play correctly...so they lose!
By the way, the house edge on slots and video poker is often quoted in reverse. In other words, a 5% edge is called a 95% payback. In this case, a higher number is better.
Want to learn more about the house edge? The Unofficial Guide to Casino Gambling lists the true odds for dozens of your favorite games.
Enjoy the game!
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