Kelly Criterion

A staking formula that sizes each bet in proportion to your edge to maximise long-term bankroll growth.

Definition

The Kelly Criterion calculates the fraction of your bankroll to stake based on your estimated edge and the odds: f = (b x p - q) / b, where b is the decimal odds minus 1, p is your estimated win probability, and q is 1 - p. It maximises the long-run growth rate of a bankroll, but it is highly sensitive to the accuracy of p: overestimating your edge leads to overbetting and steep drawdowns, so many bettors use 'fractional Kelly' (a half or quarter of the recommended stake) to reduce volatility. If your probability estimate is wrong, Kelly offers no protection.

Worked example

At decimal odds 2.00 (b = 1) with an estimated win probability of 55% (p = 0.55, q = 0.45): f = (1 x 0.55 - 0.45) / 1 = 0.10, so full Kelly stakes 10% of the bankroll. Half-Kelly would stake 5% to cut variance.

Why it matters

Kelly connects the size of an edge to how much to risk, teaching learners that staking is as important as selection, while pros use fractional Kelly to survive the inevitable losing runs.

Related

Note: Kelly's output is only as good as the probability estimate fed into it; most bettors overstate their edge, making fractional Kelly the safer choice.