The Kelly Criterion is a mathematical formula that determines the optimal bet size to maximize long-term bankroll growth. Enter your estimated edge over the market to calculate how much to bet.
What you believe the true probability is
Current market price / implied probability
The Kelly Criterion is a formula developed by John L. Kelly Jr. in 1956. It calculates the optimal fraction of your bankroll to bet when you have an edge over the market. The formula maximizes the logarithm of wealth, which means it maximizes long-term growth rate.
Full Kelly betting can be extremely volatile. Half Kelly (betting 50% of what the formula suggests) reduces variance by 75% while only sacrificing about 25% of the expected growth rate. Most professional traders use fractional Kelly.
