Finding a winning bet is only half the battle. The other half is deciding how much to bet. Bet too little, and your bankroll won’t grow. Bet too much, and a short losing streak will wipe you out.
The Kelly Criterion is a mathematical formula used by professional gamblers and investors to calculate the optimal stake size. It balances risk and reward based on your perceived “edge” over the bookmaker.
How to Use the Kelly Calculator
The Kelly formula relies on you knowing (or estimating) your true chance of winning. Here is how to interpret the fields:
- Bankroll ($): Enter your total available gambling funds (e.g., $1,000).
- Odds: Enter the Decimal odds offered by the bookmaker (e.g., 2.00 or 3.50).
- Your Win Prob (%): This is the most critical step. Enter the percentage chance you believe the outcome has of winning.
- Note: This must be higher than the bookmaker’s implied probability for the calculator to recommend a bet.
- Result: Click “Calculate Stake”.
- Positive %: This is the percentage of your bankroll you should bet to maximize growth.
- Negative or $0: Do not bet. The math says this bet has “negative expected value” (-EV).
Example of the Kelly Strategy
Imagine you are betting on a football match. The bookmaker gives Team A odds of 2.00 (Even money).
- The Bookmaker’s View: Odds of 2.00 imply a 50% chance of winning.
- Your View: You have analyzed the stats and believe Team A actually has a 55% chance of winning.
You have a 5% “Edge”. How much should you bet?
- Bankroll: $1,000
- Odds: 2.00
- Probability: 55%
The Calculator will tell you to bet exactly 10% ($100). If you bet less, you leave money on the table. If you bet more, you risk ruining your bankroll if luck goes against you.
Frequently Asked Questions (FAQ)
What is the Kelly Criterion formula?
The classic formula is: (bp – q) / b.
Where:
b = the net odds (Decimal Odds – 1)
p = probability of winning
q = probability of losing (1 – p)
Why does the calculator say “Do not bet”?
If the result is negative, it means you do not have an edge. The probability you entered is too low compared to the odds offered. Betting in this situation will mathematically result in a loss over the long term.
What is “Fractional Kelly” or “Half Kelly”?
The Full Kelly strategy can be very volatile (betting 10-20% of your bankroll on one game is stressful). Many pros use “Half Kelly” (betting 50% of what the calculator recommends) to reduce variance while still growing their bankroll.
Does this guarantee I will win?
No. The Kelly Criterion guarantees efficient bankroll growth only if your estimation of the probability is accurate. If you overestimate your winning chances, the formula will suggest bets that are too large, leading to losses.