The Kelly criterion estimates a bankroll fraction that maximizes theoretical long-run logarithmic growth. Its output can be aggressive when probabilities are uncertain.
Last reviewed: 2026-08-10
Kelly formula
Use (b x p - q) / b, where b is decimal odds minus one, p is estimated win probability, and q is one minus p.
Why fractional Kelly is common
Half or quarter Kelly lowers volatility and reduces damage from overestimating an edge. It also creates room for correlated positions and changing market conditions.
A bankroll is a hard boundary
Only model money explicitly reserved for this activity. Essential spending, debt payments, and emergency savings should never be included in the bankroll input.
Step-by-step workflow
- 1Estimate probability independently.
- 2Convert odds to net decimal return.
- 3Calculate the full Kelly fraction.
- 4Apply a fractional multiplier and a personal exposure cap.
Frequently asked questions
Is full Kelly safe?
No strategy removes risk. Full Kelly can create large drawdowns and is highly sensitive to probability error.
What happens when Kelly is negative?
The assumptions do not support positive theoretical growth, so the modeled stake should be zero.