Kelly Criterion Calculator
The share of capital to risk per trade or bet from your win rate and win/loss ratio, with half and quarter Kelly.
With a 55% win rate and wins 1.5 times the size of losses, Kelly says risk 25.0% of capital per trade; half Kelly, 12.5%, is the usual choice.
The words on this page, explained simply
New to this? Here is what each term means, in plain English.
- Kelly fraction
- The share of capital to risk that maximises long-run growth: win rate − loss rate ÷ win/loss ratio.
- Edge
- The average result per unit risked; a positive edge is needed for any bet size to make sense.
- Risk per trade
- The share of your account you accept losing if the stop-loss is hit, usually 1-2%.
The Kelly criterion gives the fraction of capital that maximises long-run growth when you have a measurable edge. Risk more and the swings eventually shrink your capital; risk less and you grow more slowly but more smoothly.
The Kelly formula
f* = p − (1 − p) ÷ b, where p is the win probability and b the average win divided by the average loss (for a bet, decimal odds minus 1). If f* is zero or negative there is no edge and Kelly says not to bet.
Example: p = 55%, b = 1.5: f* = 0.55 − 0.45 ÷ 1.5 = 0.25, i.e. 25% of capital. That is aggressive; half Kelly keeps about three quarters of the growth rate with much smaller drawdowns.
Why most traders use a fraction
Kelly assumes p and b are known. Estimated from a small record they are uncertain, and overestimating them makes full Kelly overbet. Results are also not independent coin flips. Half or quarter Kelly is the common safeguard.
Key takeaways
- f* = p − (1 − p) ÷ b.
- No edge (f* ≤ 0): don't bet.
- Half Kelly: most of the growth, far less risk.
- Break-even win rate = 1 ÷ (1 + b).
Frequently asked questions
What is the Kelly criterion?
A formula for the share of capital to stake on a favourable bet or trade so capital grows fastest over many repetitions: win probability minus loss probability divided by the win/loss ratio.
Should I use full Kelly?
Rarely. Full Kelly produces deep drawdowns and overbets when your estimates are optimistic. Half or quarter Kelly is the usual practice.
How do I use Kelly for trading?
Use your win rate and the ratio of average win to average loss from at least 30-50 trades. The result is the share of capital to risk per trade, i.e. the loss if the stop-loss is hit.