Given a favorable bet or position with a known edge, the Kelly criterion answers a question standard risk metrics don’t: what fraction of capital maximizes long-run compound growth?
How it works
Win probability minus the ratio of loss probability to net win odds gives the Kelly fraction — the theoretically optimal percentage of capital to stake for maximum long-run compound growth.
What this does not include
This does not include “fractional Kelly” position sizing (betting a fraction of the full Kelly amount, like half-Kelly), a common practical adjustment traders use to reduce volatility since full Kelly sizing can produce large drawdowns even when the underlying edge is real.
How to use this calculator
- Enter win probability and net odds received on a win.
Frequently asked questions
What does a negative Kelly fraction mean?
It means the bet has no positive edge at the given odds — the mathematically optimal action is not to bet at all, or to bet the opposite side if possible.
Why don’t professional traders use full Kelly sizing?
Full Kelly can produce large short-term swings even with a genuine long-run edge, and real-world edge estimates are uncertain — many practitioners deliberately use a fraction of Kelly to reduce volatility.
Does the Kelly criterion apply outside of gambling?
Yes — it’s widely used in position sizing for trading and investing, treating a favorable trade setup similarly to a favorable bet with an estimated probability and payoff.
