Kelly Criterion

The Kelly Criterion is a staking formula from John L. Kelly Jr., published in 1956. It computes the mathematically optimal share of a bankroll to risk on a positive-EV bet. The goal: maximize long-term growth while keeping the risk of ruin in check. By scaling stakes to the edge and the price, Kelly grows a bankroll faster than any other staking method over time, without ever betting enough to make a single loss fatal.

The core formula is Kelly % = (bp - q) / b, where b is decimal odds minus 1, p is win probability, and q is loss probability (1 - p). The output is the bankroll fraction to stake. In practice most bettors run fractional Kelly — typically a quarter or half of full Kelly — to cut volatility. Full Kelly is optimal on paper but produces swings most people can’t stomach.

Example

You rate a team at 60% to win and the book offers +120 (decimal 2.20). Plug in: b = 1.20, p = 0.60, q = 0.40. Kelly % = (1.20 x 0.60 - 0.40) / 1.20 = (0.72 - 0.40) / 1.20 = 0.267, or 26.7% of bankroll. On a $1,000 bankroll, full Kelly is $267. Many bettors instead use half Kelly ($133.50) or quarter Kelly ($66.75) to smooth the ride and hedge against a 60% estimate that’s slightly off.

Key Points

• Maximizes long-term growth: Of all fixed-fraction staking methods, Kelly delivers the fastest bankroll growth when your probabilities are accurate.
• Sensitive to probability errors: A slightly wrong win-probability estimate makes Kelly recommend oversized stakes, raising the risk of heavy drawdowns.
• Fractional Kelly is standard practice: Most experienced bettors stake a fraction (commonly 25% to 50%) of full Kelly to cut volatility and buffer estimation error.
• Never bets on negative EV: With no edge, the formula returns zero or a negative number — meaning don’t stake.
• Dynamic sizing: Kelly auto-adjusts stakes as the bankroll moves, betting more after wins and less after losses.