Kelly criterion calculator
The Kelly criterion gives the bet size that maximises long-run capital growth for a given edge. Enter your win rate, average win and average loss — get the full Kelly fraction plus the safer half- and quarter-Kelly fractions most traders actually use. Free and instant. Kelly is a ceiling on sane sizing, not a recommendation to bet the maximum.
Edge check: —
The formula
kelly criterionf* = W − (1 − W) ÷ R # W = win prob, R = avgWin ÷ avgLoss
# Example: 55% win rate, +$200 / −$100 (R = 2)
f* = 0.55 − 0.45 ÷ 2 = 0.55 − 0.225 = 0.325 → 32.5%
half-Kelly = 16.25% quarter-Kelly = 8.13%
Full Kelly here says risk 32.5% of capital per trade — wildly aggressive for real trading. That is exactly why disciplined traders scale down: half- and quarter-Kelly cut the volatility and drawdowns dramatically while keeping most of the growth.
The formula is only as good as your win rate and payoff estimates, which are noisy and drift over time. Overestimate your edge and full Kelly can bankrupt you faster than a fixed 1% rule ever would. Most professionals treat Kelly as a hard ceiling and size well below it.
Using Kelly sensibly
- Estimate win rate and payoff from a large, out-of-sample trade sample.
- Never bet more than the full Kelly fraction — usually bet a quarter to a half of it.
- Cross-check against a fixed-fractional rule with the position sizing calculator.
- Confirm survivability with the risk of ruin calculator.
The criterion was published by John L. Kelly Jr. at Bell Labs in 1956 and later popularised for markets by Ed Thorp. Investopedia's Kelly criterion overview covers the same trade-offs.
Frequently asked questions
What is the Kelly criterion?
The Kelly criterion is a formula for the bet size that maximises the long-run growth rate of capital. For trading, f* = W − (1 − W) ÷ R, where W is win probability and R is the reward-to-risk ratio (average win ÷ average loss). It tells you the theoretically optimal fraction of capital to risk per trade given your edge.
Why do traders use half-Kelly or quarter-Kelly?
Full Kelly is extremely aggressive and assumes you know your win rate and payoff exactly — which you never do. Because your edge estimate is noisy, most practitioners bet a fraction of Kelly (half or quarter). Half-Kelly captures roughly three-quarters of the growth with far less than half the volatility and drawdown, which is why it is the common real-world compromise.
What does a negative Kelly result mean?
A negative or zero Kelly fraction means you have no edge — the math says bet nothing. If the formula returns a negative number, your win rate and reward-to-risk combination loses money on average, so the only correct position size is zero. The calculator flags this as 'No edge'.
Is Kelly safe to use for trading bots?
Kelly maximises growth but tolerates very deep drawdowns that most humans and many funds cannot stomach. It also assumes accurate, stable inputs and independent bets — assumptions that break in real markets with correlated positions and regime shifts. Treat Kelly as an upper bound on sane sizing, not a target, and never exceed it.