Kelly Criterion

The Kelly Criterion is a staking formula used to calculate how much of your bankroll to bet based on your perceived edge and the odds.

It aims to maximize long-term bankroll growth while avoiding overbetting.

How it works

• Requires estimating the true probability of an outcome

• Uses the formula:
  f = (bp − q) / b
  where:

  • b = decimal odds − 1

  • p = probability of winning

  • q = 1 − p

• The result shows what fraction of bankroll to stake

Example

• Odds: 2.00

• Estimated win probability: 55%

• Kelly stake: 10% of bankroll

Key characteristics

• Mathematically optimal staking model

• Highly sensitive to probability estimation

• Often used in fractional form (e.g. 25% Kelly)

Important note
Incorrect probability estimates can lead to aggressive staking and large drawdowns.