The Kelly Criterion is the mathematically optimal way to grow a bankroll, but it comes with a catch: Extreme Volatility. Betting “Full Kelly” is a rollercoaster ride that makes most bettors sick.
This Growth Simulator runs a Monte Carlo test (100 bets) to show you the difference between the aggressive Full Kelly and the smoother, safer Half Kelly approach.
Compare Full vs Half Kelly volatility.
Why Pros Use “Fractional Kelly”
The simulator often reveals a scary truth: Full Kelly grows the fastest, but it also crashes the hardest.
- Full Kelly: Maximizes geometric growth rate. However, it has a 50% chance of halving your bankroll at some point. Ideally suited for robots, not humans with emotions.
- Half Kelly (0.5x): Captures 75% of the maximum growth rate but with only 50% of the variance. This is the “Sweet Spot” for most professionals.
- Quarter Kelly (0.25x): Very safe, slow steady growth. Ideal for risk-averse investors.
How to Read the Simulation
Click “Simulate” multiple times. You will notice that:
- Full Kelly often ends up with the highest number, but sometimes crashes near zero.
- Half Kelly is much more consistent. It rarely crashes and provides a smooth upward curve.
This visual proof helps you decide which staking plan fits your psychological risk tolerance.
Frequently Asked Questions (FAQ)
What is the danger of Full Kelly?
The danger is overestimating your edge. If you think you have a 5% edge but you actually have 2%, Full Kelly will recommend bets that are too large, leading to mathematical ruin. Half Kelly provides a margin of error for your estimation.