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Optimize Bet Sizes with the Kelly Criterion

Updated: 8 hours ago


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Summary: The Kelly Criterion is a bet-sizing formula that uses your edge and the odds to recommend how much of your bankroll to wager for maximum long-term growth. It is powerful, but it assumes your edge estimate is realistic and your risk tolerance is high.



What is the Kelly Criterion?


A mathematical rule for optimal bet sizing. Kelly maximizes long-run bankroll growth by staking a fraction of your bankroll proportional to your expected value (edge) and the payout odds.



The Kelly formula (with betting notation)


  1. Edge: The bettor's estimated advantage on a given wager

    1.  Edge = (Probability of winning * Decimal odds of the bet) - 1


  2. Odds: The odds on a given wager, in decimal odds format


Tip: Convert American odds to decimal, or use your Odds Converter and EV Calculator to speed this up.


The formula is:


Kelly % = Edge / (Decimal Odds - 1)



Worked example


You estimate a 60% win probability and the sportsbook offers 1.70 decimal odds.

  • Edge = (.6 * 1.7) - 1 = 1.02 - 1 = 0.02

  • Kelly % = 0.02 / (1.7 - 1) = 2.86%


Recommended stake: If your bankroll is $10,000, Kelly suggests $286.


American odds version: 1.70 decimal ≈ -143 American.

Fractional Kelly for real bettors


Full Kelly is aggressive and volatile. Most sharp bettors use Fractional Kelly:

  • Half-Kelly (0.5×): stake half the Kelly amount

  • Quarter-Kelly (0.25×): stake a quarter of Kelly


Fractional Kelly reduces drawdowns and keeps you in the game when your edge estimate is noisy. It grows the bankroll slower than full Kelly but improves the risk-adjusted ride.


Rule of thumb: Use Quarter-Kelly when your edge comes from models or small samples. Consider Half-Kelly for highly reliable edges such as top-down plays anchored to sharp market signals.


Estimating your edge the right way


Your Kelly stake is only as good as your probability estimate. Better inputs:


If you cannot defend the probability with data, don't bet.



Common limitations and how to handle them


  1. Probability error: Kelly assumes good inputs. Overestimating edge leads to over-betting.

    1. Mitigation: Use fractional Kelly and conservative priors.

  2. Independence assumption: Kelly treats bets as independent. Player and team props can be correlated.

    1. Mitigation: Adjust stake when correlations exist.

  3. Multiple simultaneous bets: Staking per bet can over-commit total bankroll when many wagers are open.

    1. Mitigation: Use our multi-event Kelly Calculator to adjust

  4. Liquidity and limits: Small markets can block the full stake.

    1. Mitigation: Cap by book limits and diversify across books.

  5. Volatility of full Kelly: Swings can be large and stressful.

    1. Mitigation: Use Half- or Quarter-Kelly.

  6. Long-run optimality: Kelly optimizes over many trials. Short-term variance can be harsh.

    1. Mitigation: Stay disciplined, size down during uncertainty.



Quick reference table

Input you need

How to get it fast

Win probability

Model output, no-vig market anchor, news-based adjustment

Decimal odds

Convert American odds → Odds Converter

Edge (EV)

Use EV Calculator

Stake

Kelly % × Bankroll, then apply fractional Kelly



FAQs


Is full Kelly ever appropriate?

Only when your edge estimate is well-validated and you can tolerate large drawdowns. Most bettors should start with Fractional Kelly.


What if my edge is negative?

Kelly % will be ≤ 0. The correct action is no bet.


Can I use Kelly for parlays and teasers?

Yes, but estimate the combined probability accurately and watch for correlations.



Next steps


Bottom line: Kelly is a sharp tool when your probabilities are sound. Use it to size efficiently, apply Fractional Kelly for durability, and keep your edge estimates honest.

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