Poker players finances – Bankroll management
On the second part of the Poker Players Finances article series we go through an important concept called bankroll management. You can often read posts on forums or blogs how players have lost their entire bankrolls. Most of the time this has happened because the player has taken too big risks, i.e. he has played “underrolled” which means that he hasn’t had big enough bankroll for the games he has been playing. Just like a carpenter needs his tools to earn a living, a poker player cannot earn money playing poker if he doesn’t have enough capital to sit at the tables. Bankroll management is guideline how to move up and down the stakes given how your much you make or lose money.
Bankroll management depends on many factors; are you a casual player or is poker your main source of income? How much money do you have outside your poker bankroll? Do you buy play deep tables or do you buy in short? Do you play heads up or 6max?
It’s good to keep in mind that no bankroll management strategy will ever be sufficient if you are losing player, so you better turn up your sleeves and work on your game. Bankroll management is there to guarantee that you will never go broke if you are disciplined enough to follow the guideline and to work on your game. The game evolves and players improve, so you need to be one step ahead of them.
I heard an experienced trader say once: “you will only learn when you go broke three times!”. Most of the poker players will lose their entire bankroll at some point of their career. For some it will happen many times and some never recover from it. A smart person not only learns from his own mistakes but also from other people’s mistakes.
In this article we will provide you with a general guideline for bankroll management and discuss several factors related to it; liferoll vs poker bankroll variance, psychological considerations, cashing out, moving up/down limits, among other things.
Liferoll and poker bankroll
It’s common sense to separate the money needed for rent, food, bills and other things from your poker bankroll. This money we will call “liferoll” and whatever money you have reserved for playing poker is called “poker bankroll”. While a casual player can deposit $100 to play a few hours every now and then, a more serious player should keep the two rolls separated. If you are a professional poker player and your main source of income is poker, it’s advicable to have at least one year’s living expenses on your bank account to cover for the bad times. While a casual player can get away with loose bankroll management since his income is in no way tied to poker and he’s playing mostly for fun and entertainment, a professional player should be really careful with his poker bankroll. Having 100 buy-ins for the main game is the minimum requirement for a professional player, although some players choose to play with even smaller rolls.
Generic guideline for bankroll management
Since each player manages his/her bankroll in a different way, I decided to provide you with my own guideline which something between conservative and aggressive. While some players will say that 30 buy-ins is enough, the next player might say that even 100 buy-ins per level is not adequate. The guideline provided is also more suitable for a casual player, who still plays decent volume on a weekly basis and buys in for 100bb at 6max tables. All the numbers in the table are in USD, i.e. how much cash you should have in your poker bankroll to move up or down
As mentioned, the guideline is more of a suggestion for you to base your own bankroll management strategy on. If you are a beginner with $10.000 to play poker with, it might not make sense to start at PLO200 even though you are rolled for it but rather at PLO25 or PLO50 and then gradually move up as your skills and winrate justify it. Also if you deep games games and buy in for over 200bb to a table, your roll needs to be bigger than presented on this guideline. Same goes for heads up games where variance is even bigger than in 6max games since you play more hands and you are all in more often.
It takes a lot of discipline to follow such a guideline when you are running hot at the tables and feel invincible. It also takes a lot of courage to swallow your pride and move down to play the lower limit when variance shows you it’s ugly face. Chasing losses at higher limits rarely proves to be a smart bankroll decision, it’s much more wise to stick to the bankroll management plan you have created for yourself.
The bankroll requirement gets stricter the higher up you go in the limits. At PLO10 you can get away with 40 buy-in bankroll because it’s not a very significant sum of money in absolute terms and most of the time you can easily deposit more. If you can’t, you should probably consider playing a lower limit instead. The players at lower limits are generally not very advanced and a hard working grinder should learn to beat those games quite quickly. Going to mid-stakes games were the skill differences between players get gradually smaller and smaller, also the egde anyone can have on the games also gets reduces. This will lead to increase in variance and the need for more conservative bankroll management since the swings are expected to be larger.
Taking shots at a higher limit and cashing out
Taking shots to higher limits is one the most exciting things about poker: new set of skills might be needed, new player pool, games get gradually more aggressive etc. The best time to start taking shots is when you see weak players sitting at the table, possible the same players that you have already played in your main game. Obviously you should plan for taking shots as well and good rule of thumb would be to start taking shots when you have ~70 buy-ins for your main game. You should plan ahead and set a stop-loss for the shot, let’s say at 5 buy-ins. If you lose these 5 buy-ins you go back to lower level but if you happen to win, you can progressively start playing more at the higher limit. You might still want to mix in some tables from the lower limit.
Cashing out from your poker roll depends a lot on your life situation. If you have other income, such as salary from a regular job, you don’t necessarily need to withdraw from your poker roll. When this is the case, you can move faster up the stakes and take advantage of rakeback helping your poker bankroll. In any case whether or not to cash out, when to do it and how much, all this is good to budget beforehand so that you always know your financial situation and don’t play outside your risk tolerance in case you need money for real life expenses.
Basics of variance
Even though poker is a game of skill, there is still an element of chance involved brought about by the random shuffle and distribution of cards. Variance is a measure of uncertainty and it plays an important role in poker in general, but especially so in PLO. In PLO where the hand equities run close and you are rarely a big favorite to win when all the money goes in. This means that your actual winnings will deviate from your expected winnings and the bad players can have long periods where they win money even though their expected winnings are zero or negative. This keeps the fish coming back and the games juicy. On the flip side, any player can at any time hit a bad strech of cards even though he would be constantly playing his A-game and this is were well-planned and executed bankroll management comes in.
In order to get a basic understanding of PLO variance, let’s have a look at a simulation where a break-even (winrate = 0) poker player plays 100.000 hands with a standard deviation of 150 bb/100, which about an average standard deviation for a tight-aggressive PLO player. Standard deviation is a measure of variance and it shows how much variation exists from the expected winnings.
In the first picture you see 10 different simulations/runs, all are possible outcomes for the above-mentioned player. With an expectation of 0 winnings (the dotted black line), the possible outcomes vary from making 75 buy-ins to losing 60 buy-ins in 100.000 hands. On the second picture is illustrated the frequency and severity of downswings in the simulation. The largest downswing was over 92 buy-ins. While these kind of extreme swings are rather infrequent, they should be taken into consideration when formulating up a bankroll strategy.
These numbers can be quite surprising to new PLO players and sometimes even the most experienced players are caught by surprise how brutal the downswings are. So what is the best protection for your bankroll? Rakeback will soften the downswings to some degree, but the best security for your bankroll is to consistently work on improving your game. Let’s do another simulation, except this time the player is a solid 8 bb/100 winner.
Now we notice a solid uptrend on the expected winnings, ending up at 80 buy-ins for 100.000 hands. All of the simulations finish the sample making a profit (although this will not always be the case if you run the simulations multiple times). From the second picture we can observe that the worst downswing was over 52 buy-ins even though the player is expected to win with a winrate of 8 bb/100! This is why bankroll management plays such a big role in succesful PLO player’s strategy; the variance should not be underestimated under any circumstance.
The psychological effects of solid bankroll management are very clear-cut; if you don’t have to worry about money, you’ll play more relaxed and your mind will be more peaceful which will lead to better decisions at the tables. Being constantly under pressure to perform bankroll-wise, i.e. playing underrolled and having to win money, will lead to frustration and eventually tilt. This doesn’t mean that you should overdo it and keep a 200bi bankroll available for your main game at all times, your job is to find the optimal balance between securing your capital, moving effectively up the stakes and having peace of mind throughout the process.
PLO can be a brutal game in the short-term because of the variance. It can destroy a badly managed bankroll in very short time and it can take a toll on you mentally. As with any business, the first steps are often not profitable especially when entering a new market, e.g. learning PLO after playing NLHE before. You should plan all your decisions with long-term goals in mind and not worry too much about short-term variance. This is best achieved by working on your game constantly and well-planned bankroll management, which you also should have to discipline and mental toughness to execute.