What is the Kelly Criterion?
The Kelly Criterion is a formula used by professional gamblers and investors to determine the optimal size of a series of bets. It was developed by John Kelly at Bell Labs in 1956.
Unlike fixed staking (betting the same amount every time), Kelly staking adjusts your bet size based on your edge. The bigger your advantage, the more you bet. If you have no edge, you bet nothing.
The Formula
The logic is elegant in its simplicity:
f* = (bp - q) / b
- f* = Fraction of bankroll to bet
- b = Net fractional odds (Decimal Odds - 1)
- p = Probability of winning
- q = Probability of losing (1 - p)
Why Use Fractional Kelly?
While "Full Kelly" provides the mathematically fastest growth rate, it is extremely volatile. It often suggests betting huge portions of your bankroll on a single game.
To smooth out the variance, pros use Fractional Kelly:
- Half Kelly (0.5x): Bets half the recommended amount. Dramatically reduces volatility while still capturing ~75% of the growth. (Recommended)
- Quarter Kelly (0.25x): Very safe. Best for conservative bettors who want to protect their bankroll above all else.
Frequently Asked Questions
Can Kelly Criterion bankrupt me?
Theoretically, no, because it always suggests a percentage of your current bankroll. As you lose, your bets get smaller. However, in the real world, "Full Kelly" is very risky due to estimation errors. If you overestimate your edge, Full Kelly can ruin you.
What is a good bankroll size?
Your bankroll should be money you are separate from your life expenses. Whether it's $100 or $100,000, treat it as an investment fund, not a spending account.
Get Sharp Picks Daily
Knowing how much to bet is step 2. Step 1 is knowing what to bet. We find the +EV plays for you.
Join TrueEdge