Kelly Criterion
The Kelly Criterion is a formula that determines the optimal percentage of your bankroll to wager on a given bet, based on your edge and the payout odds.
Where:
- b = the payout multiplier (net odds received on the bet)
- p = probability of winning
- q = probability of losing (1 - p)
Example
If a bet has a 55% chance of winning at even odds (1:1 payout):
Kelly % = (1 x 0.55 - 0.45) / 1 = 10%
Fractional Kelly
Most bettors use fractional Kelly (typically 1/4 to 1/2 Kelly) to reduce variance. Full Kelly maximizes growth rate but can lead to large swings.
Qauntom’s built-in Kelly calculator shows both full and fractional Kelly sizing for any signal.
Start with quarter-Kelly (25% of the Kelly recommendation) if you’re new to bankroll management. You’ll grow slower but with much less risk of a big drawdown.
