What the Kelly criterion is
The Kelly criterion answers one question: given an edge, what fraction of my capital should I risk on each trade to maximise long-term growth? Bet too little and you grow slowly. Bet too much and volatility eats your growth, until past a certain point you lose money even though the strategy is profitable.
The growth curve in the calculator makes this visible. It rises to a peak at full Kelly and falls after it. At roughly twice Kelly, long-run growth drops to zero, and beyond that it is negative.
Why traders use half or quarter Kelly
- Your inputs are estimates. If your true win rate is lower than you think, full Kelly is already over-betting.
- Drawdowns are large. Full Kelly produces deep, frequent drawdowns. The table shows typical and bad-luck drawdowns for each fraction from a simulation of your numbers.
- You keep most of the growth. Half Kelly delivers roughly three quarters of full Kelly's growth with far smaller swings.
Reading the result
The risk per trade shown is the share of your account you lose if a trade hits its stop (with the average loss as your risk unit). Use it as your risk percentage in the position size calculator.
If the result is zero or negative, your numbers do not describe an edge, and Kelly says not to trade the strategy.
The formula
Worked examples
Even odds with a small edge
You win 55% of trades with winners and losers the same size. Full Kelly is 2 × 0.55 − 1 = 10% per trade. Half Kelly is 5% and quarter Kelly is 2.5%. Simulating 200 trades shows the typical worst drawdown:
Low win rate, big winners
You win 40% of trades at 3R. Kelly risk is 0.4 − 0.6 ÷ 3 = 20%, a number far higher than most traders could stomach. That is the main reason to use a fraction of Kelly.
When Kelly says no
At a 40% win rate with winners and losers the same size, Kelly is 2 × 0.4 − 1 = −20%. A negative result means the strategy has negative expectancy, and no position size will fix it.
Frequently asked questions
Should I bet full Kelly?
Rarely. Full Kelly maximises growth only if your inputs are exact, and it produces large drawdowns. Half or quarter Kelly keeps most of the growth with far less risk.
What is half Kelly?
Half Kelly means risking half the amount the Kelly formula suggests. It gives about 75% of the growth with a much smaller drawdown, which is why many professionals prefer it.
How do I use the Kelly number as a trader?
Treat it as an upper limit for risk per trade, then choose a fraction of it. Enter the result as your risk percentage in the position size calculator.
What happens if I bet more than Kelly?
Growth falls. At about twice Kelly it reaches zero, and beyond that the account shrinks over time even with a profitable strategy.
Is the Kelly criterion the same for stocks and sports betting?
The formula for a binary outcome is the same. Trading is harder because win rate and payoff are uncertain and change. That is another reason to use a fraction.
Where do my win rate and payoff come from?
From your own trade history. You need enough trades for the numbers to be reliable, ideally a few hundred. With less data, use a lower win rate to be safe.
Kelly is only as good as your inputs.
A reliable edge makes position sizing meaningful. These indicators help you measure and improve yours.
Last updated October 2026. For education only. Not financial advice. Results depend on your inputs and cannot predict future performance.