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Kelly Criterion: How to Use the Kelly Lab
The Kelly Criterion is a mathematical formula used to determine the optimal size of a series of bets. It is designed to maximize the logarithm of wealth, leading to long-term exponential growth.
The Formula
f* = (bp - q) / b
- f*: The fraction of the bankroll to wager.
- b: The decimal odds minus 1.
- p: The probability of winning.
- q: The probability of losing (1 - p).
The Importance of "Fractional Kelly"
Full Kelly can be extremely volatile. Most professionals use "Half-Kelly" (0.5) or "Quarter-Kelly" (0.25). This reduces the volatility significantly while still providing most of the growth benefits. You can adjust this multiplier in our **Kelly Lab** tool.
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