Kelly Criterion

The Kelly Criterion is a staking formula that John L. Kelly Jr. introduced back in 1956, and it works out the mathematically ideal slice of your bankroll to put on a bet that carries positive expected value. Think of it as a balancing act between two goals: growing your money as fast as possible over time, while keeping the chance of going broke as low as possible. By scaling each bet to match your perceived edge and the odds on offer, Kelly aims to build a bankroll quicker than any other staking method in the long run, all without ever betting so much on one wager that a single loss wipes you out.

Here is the basic formula: Kelly % = (bp - q) / b, where b is the decimal odds minus 1, p is your probability of winning, and q is your probability of losing (which is just 1 - p). The answer is the share of your bankroll you should stake. In real life, plenty of bettors prefer a fractional Kelly approach, usually wagering one-quarter or one-half of the full Kelly figure, to tame the swings that come with aggressive sizing. Full Kelly staking is optimal on paper, but it can create big bankroll ups and downs that most people find a little nerve-wracking.

Example

Let’s say you think a team has a 60% chance of winning, and the bookmaker is offering +120 (decimal 2.20). Plug it into the Kelly formula: 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 your bankroll. With a $1,000 bankroll, the full Kelly stake comes to $267. Many bettors would instead go with half Kelly ($133.50) or quarter Kelly ($66.75) to smooth out the ride and leave room for the chance that their 60% estimate is a touch off.

Key Points

• Maximizes long-term growth: Out of all fixed-fraction staking methods, the Kelly Criterion delivers the fastest bankroll growth when your probability estimates are accurate.
• Sensitive to probability errors: If your read on the true win probability is even a little off, Kelly may suggest stakes that are too big, which raises the risk of painful drawdowns.
• Fractional Kelly is standard practice: Most seasoned bettors use a fraction (commonly 25% to 50%) of the full Kelly amount to cut down on volatility and cushion against estimation mistakes.
• Never bets on negative EV: The formula naturally returns zero or a negative number for bets without an edge, which is its way of telling you not to bet at all.
• Dynamic sizing: Kelly-based staking adjusts your bet sizes automatically as your bankroll grows or shrinks, putting more down after wins and less after losses.