how to use the kelly criterion calculator
- Enter your bankroll.
- Enter your win rate from past trades.
- Enter the average multiple winners end at (3 = a 3x) and the average loss on losers (100% for rugs, 50% if you stop out at half).
- Read the Kelly fraction and the break-even win rate.
formula
b = win multiple − 1 (net odds) Kelly f* = p ÷ loss − (1 − p) ÷ b break-even win rate = loss ÷ (loss + b)
worked example
Win rate 35%, winners end at 3x (b = 2), losers lose 60%. Kelly = 0.35 ÷ 0.6 − 0.65 ÷ 2 = 0.583 − 0.325 = 25.8% of the bankroll per trade. Half Kelly is 12.9%. Break-even win rate is 0.6 ÷ 2.6 = 23%.
why nobody bets full Kelly
Kelly is only optimal when your inputs are exact, and in trading they never are. Overestimating your edge makes the Kelly bet too large, and betting twice the true Kelly size gives roughly zero long-run growth with brutal drawdowns. Half Kelly keeps about three quarters of the growth with far smaller swings, which is why it is the usual choice.
frequently asked questions
What is the Kelly criterion?
A formula for the fraction of a bankroll to bet on a repeated favourable bet so that long-run growth is maximised. It was published by John Kelly in 1956 and is used in betting and trading.
What does a negative Kelly mean?
No edge: with your win rate and payout the bet loses money on average, so the growth-optimal bet is zero.
Should I use full or half Kelly?
Half or quarter Kelly. Your win rate and payout are estimates, and the cost of betting too much is much larger than the cost of betting a little too little.
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