Kelly Criterion
The Kelly Criterion is a stake-sizing formula that maximises long-term bankroll growth by scaling bet size to your edge. Larger edges deserve larger bets; marginal edges deserve small ones. The formula is mathematically optimal — but high-variance.
The Kelly formula
Stake = (probability × (odds − 1) − (1 − probability)) ÷ (odds − 1).
Example: 55% win probability at decimal odds of 2.10 gives Kelly stake = (0.55 × 1.10 − 0.45) ÷ 1.10 = 14.5% of bankroll.
Why fractional Kelly is safer
Full Kelly is mathematically optimal but high-variance — drawdowns of 50% or more are common even with a real edge. Most professional bettors use fractional Kelly (¼ or ½) to reduce drawdowns at the cost of slower growth.
Always size stakes based on edge, not gut feeling, and never bet more than you can afford to lose. Kelly assumes your edge estimate is accurate — over-estimating edge is the fastest way to ruin even with the formula.
Frequently asked questions
Should I use full Kelly or fractional Kelly?
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Fractional Kelly (¼ or ½) is recommended for most bettors. It dramatically reduces drawdown variance while still capturing most of the long-term growth advantage of full Kelly.