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It's not uncommon for people to use variance and volatility interchangeably (I was even guilty of this at one point). However, these terms do not mean the same thing. Moreover, not understanding what each of them means can lead us to make the wrong decisions - it's hard to know what you want when you don't have all of the information at hand.
Fortunately, this issue can be cleared up with just a simple explanation. Let's get right into it and take a look at the differences between variance and volatility.
Understanding Variance and Volatility
First, let's go over what variance and volatility are. To put it simply; variance and volatility are key statistical concepts that describe the behaviour of a game's payouts. While they are closely related and often indicate the same points, they have completely different meanings.
Variance refers to the measure of how much the results of a game can vary from the average. High variance means there is a wide range between the lowest and highest payouts, leading to more unpredictable results. Low variance indicates that payouts are more consistent and closer to the average.
Volatility, on the other hand, is often used interchangeably with variance but specifically refers to the risk level of a game. High volatility tends to offer larger payouts but less frequently, while low volatility versions provide smaller, more frequent wins.
In my experience, understanding this subtle distinction can help in selecting versions that align with your risk tolerance and gaming goals. Without this knowledge, you may be putting yourself at a disadvantage.
How Variance and Volatility Affect Your Game
Knowing the variance and volatility of a game can drastically change how you approach playing it. This might just be my opinion - I'm sure there are people out there who have a whirl of a time without ever looking at variance or volatility. However, it can let you make better decisions and know if a certain game is right for you.
Let's take a look at high variance and volatility. High variance/volatility versions can produce substantial payouts, which is ideal if you're aiming for a significant win. However, you can expect longer periods without wins - something which can be challenging if you don't have a sufficient bankroll.
Low variance/volatility versions provide more consistent payouts, offering a steady flow of rewards. These versions make it easier to manage your bankroll as you're not likely to experience long losing streaks.
If you are like me, you may want to get the best of both worlds. In this case, playing the best medium variance slots with regular payouts might be the right choice for you - they give you the ability to experience moderate wins on a fairly regular basis.
How to Use Variance and Volatility to Your Advantage
To get the most out of your iGaming experience, I think it's a pretty good idea to use variance and volatility to your advantage. How do we do this? Well, first you need to choose versions based on risk tolerance.
If you're a high roller or someone who enjoys the thrill of chasing big wins, high variance/volatility versions are for you. These versions, such as progressive jackpot slots or high-stakes poker, offer the potential for significant payouts but require a larger bankroll to withstand potential losing streaks. In my opinion, you should approach these versions with a well-defined budget and the understanding that wins might be rare but rewarding.
Conversely, if you prefer steady gameplay with lower risk, opt for low variance/volatility ones like classic slots or table games with consistent payout structures. These versions are excellent for extending your playtime and maintaining a steady bankroll without the emotional highs and lows of high-variance versions.
I think it's also important to adjust your betting strategy. For high-variance versions, consider placing smaller bets to extend your playtime and increase your chances of hitting a big win. In contrast, for low variance versions, you might feel more comfortable placing larger bets since wins are more frequent and the risk of significant losses is lower.
Common Misconceptions
In my experience, there are a few common misconceptions about variance and volatility that can lead to confusion:
With so many people interested in gambling (reports from 2022 indicate that around 43% of people gamble every month in the UK - other Western countries share similar statistics), it's not a surprise that so many of us get it wrong. However, these misconceptions need to be remedied so all of us can be better informed about what we are playing.
I hope I have been able to give you a better understanding of both variance and volatility in relation to iGaming. While both are extremely similar, they are not the same and should not be used interchangeably (although, if we are being honest, you can probably get away with using them interchangeably since they both indicate similar points).
So, use this information to your advantage and choose titles that fit your preferences. Have fun!
