Overview:

When people think about what skills go into making a highly successful poker player, they often think about aggression, mathematical ability, and an ability to read opponents like an open book. These are certainly keys to becoming a winning player, but being a successful player is about more than just being a winning player. Being a successful player means being able to leverage your skills to actually stay in the game and make money over time. That is where bankroll management comes into play.

Why is it important?

The main reason that bankroll management is important is that poker is a long term game. The outcome of any one hand is completely random. Even AA loses to 72 off-suit about 12% of the time. Over time, however, you can’t fight the power of math. If AA loses 12% of the time to 72 off-suit, then that means it wins about 88% of the time and if you played AA and your opponent played 72 one thousand times, you would make a fortune.

Where bankroll management comes in is giving you the chance to get to the “long term”. Consider the following proposition: You have $100,000 and it is all the money you have in the world. You are using it to support yourself playing poker and you have no way to get more if you lose it. Somebody offers to bet you $100,000 that his 72 off-suit can beat your AA. Do you take the bet?

Well, the bet definitely has a high expectation (the amount of money you expect to earn off the bet), but it also has a high risk of you going completely broke. If you lose the $100K, you can’t get more money in this example and are out of action and have no way to support yourself, pay your bills, etc.

Do you take the bet? It’s very tempting, but keep in mind that roughly once every 8 bets on average, you’re going to go completely broke and be unable to play again or support yourself.

Now suppose the same guy offered the same bet but was willing to bet the $100,000 in $1,000 increments – basically running the cards 100 times. Well, that’s a bet I would take in a heartbeat.

What’s the difference between these two examples? In the first one, I was straight out gambling. I was betting the farm, admittedly with a huge edge, but with zero margin for error. If the cards didn’t go my way, I was dead.

In the second example, I was betting smaller increments and running the cards multiple times. That gave me the flexibility to work through a bad run of cards. I could lose the first 4 or 5 hands, and still know that in the next 95 hands, I was a big favorite to make a lot of money.

In poker, you are playing a math game. Over time, if you get your money in as a favorite, you will show a profit. You can’t fight the math. However, because every hand is essentially random, it can sometimes take what seems like a very long time for your edge to translate into bottom line profit.

Just to give you an example of what I am talking about, let’s say we’re flipping a coin. You always take heads. The chances you will win any given flip is 50%. Sometimes, however, you will go long stretches without winning at all.

There is a 3% chance that any given set of 5 throws will be 5 losses in a row for you. Now, that sounds like a small chance, but if you play enough, you will see that happen reasonably often. The same sort of thing applies in poker. You can get you money in as a 2:1 favorite (say with AA versus a flopped flush draw) and still lose several times in a row before things turn around and the math starts working in your favor. Consider:

If you are getting all in against a flush draw with AA, 2% of the time, you will lose 4 in a row. Trust me, the first time you do lose 4 in a row, you will start to feel like you are the unluckiest person in the world. However, if you play enough hands, it will happen.

How do you combat the impact that these small chances of long unlucky streaks bring with them? Bankroll management. If you have the right bankroll behind you, you can watch some guy beat you with his flush draw 4 times in a row and not get upset about it, knowing that you can be patient and that over time, you will earn it all back, and more.

Bankroll Management, The Simple Version:

There is a mathematical way to determine the proper bankroll requirements for your particular ability, risk tolerance, and style of play. I’ll cover that below. Fortunately, for those of us who don’t want to bother doing the calculations, there are also some simple rules of thumb we can use.

For full ring limit play, you will generally want your bankroll to be 200 big bets (BB) or more. So for a $2/$4 game, you would want your bankroll to be at least $800. For a $5/$10 game, you would want at least $2,000.

Note, I’m talking about bankroll, not buy-in. You wouldn’t sit at a $2/$4 limit game with $800. You would most likely sit with 25BBs, or $100 in the case of a $2/$4 game. Your bankroll is the total amount you have set aside to support your play across multiple sessions.

For 6 seat table a good rule of thumb is 300BBs or more. So for a 6 max $2/$4 game, you would want $1,200 in your bankroll. The reason that 6 max has a higher bankroll requirement is that the shorter table means you should be playing more hands, which means you will often be playing weaker hands with a smaller positive edge. The smaller edge means it will take longer to get to the “long run” where your edge expresses itself. As a result, you need a bigger bankroll to withstand the longer losing streaks as you wait for your edge to result in a profit.

For shorter tables and heads up play, you want an even bigger bankroll – probably in the range of 500BBs to compensate for the weaker hands, higher aggression, and therefore larger variance that comes with that sort of play.

For no limit, we talk in terms of “buy-ins” rather than big bets. A good rule of thumb for full ring is not to have more than 5% of your total bankroll in play at a time, so you want your bankroll to be 20 times the buy-in of the game you want to play. So if you wanted to play $.25/$.50, with a $50 max buy-in, you would want a bankroll of at least $1,000. If you wanted to play $1/$2 live NL with a $200 buy-in, you would want roughly $4,000 in reserve.

Again, as the games get shorter, you need a deeper bankroll to overcome variance. For a 6 seat table, I would want 30 buy-ins in my bankroll. For heads up or short handed play, I would want 50 buy-ins.

Bankroll Management, The Mathematical Answer:

You can use math to figure out the bankroll requirements for your given ability, risk tolerance, and style of play. What you would need to know is:

1)Your Win Rate
2)The standard deviation around your win rate
3)Your willingness to go broke

Your win rate is expressed as “big bets per hundred hands dealt” and can be determine either from good manual record keeping or through using a program like Poker Tracker to track live and on-line play.

The standard deviation for your win rate is a measure of how consistent your average win rate is. Again, Poker Tracker will provide this information, or you can dust off the college statistics books and figure it out that way. It’s important because a player who wins 2BB/100 (2 big bets per 100 hands dealt) plus or minus 1BB will need a smaller bankroll than a player who wins 2BB/100 plus or minus 18. The swings of the first player will be tiny compared to the swings of the second.

You willingness to go broke (risk of ruin) is something only you can know. If you are willing to tolerate a 10% chance of losing all your money, you will have smaller bankroll requirements than somebody who wants a 1% chance of going broke.

The formula for figuring out your bankroll from these factors is:

BR = SD*SD*ln(risk of ruin)/(-2WR)
WR = Win Rate
SD = Standard Deviation
BR = Bankroll

If you don’t feel like doing the math, you can check out this link for a helpful calculator

http://www.reviewpokerrooms.com/poker-games/general/bankroll-requirements.html

Alternatively, if you have a set amount of money, you can figure out what your risk of ruin for a given stake by using this formula:
Risk of Ruin = e-2 x WR x BR ÷ (SD x SD)

Or, if you want to avoid the math, you can use the calculator at this link:
http://www.poker-tools-online.com/riskofruin.html

The key thing to remember is that if you are using your own numbers rather than the rules of thumb, then you need to make sure you have enough hands in your database to make the numbers meaningful and representative of your true results. 50,000 hands is probably a reasonable place to start using your own numbers. The more hands you have, the more accurate your stats will be. If you don’t have 50,000+ hands in a database, you are better off using the rules of thumb than using numbers that might not be representative of your play.

Conclusion:

As you can see, there is more to being a successful poker player than being a winning poker player. You also need the cash reserves to help you power through the downturns and losing streaks. Properly bankrolled, a winning player can make a lot of money playing poker these days. Improperly bankrolled, even the best winning players will eventually lose all their money. Don’t be that guy.

Good luck at the tables!

Steve @ Power Poker Course.




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