Kelly Criterion Calculator
The mathematically optimal bet size based on your win rate and average payoff. Used by hedge funds and professional gamblers.
Inputs
How to Use the Kelly Criterion for Position Sizing
The Kelly Criterion is a mathematical formula that tells you the optimal percentage of your account to risk per trade based on your edge. It was developed by John Kelly at Bell Labs in 1956 and has been used by hedge funds, professional gamblers, and quant traders ever since.
Input your win rate and your average win-to-loss ratio. The calculator outputs the Kelly percentage — the mathematically optimal bet size that maximizes long-term growth. Most traders use "half Kelly" or "quarter Kelly" to reduce volatility.
Full Kelly is aggressive. If your edge says to risk 20%, you'll experience massive drawdowns even though your long-term growth is maximized. Half Kelly gives you 75% of the growth with significantly smoother equity curves. Quarter Kelly is even smoother.
Formula
Kelly % = Win Rate − ((1 − Win Rate) ÷ Win/Loss Ratio)
Example
Your trading journal shows a 55% win rate with average winners of $600 and average losers of $400. Win/loss ratio = $600 ÷ $400 = 1.5.
Kelly % = 0.55 − (0.45 ÷ 1.5) = 0.55 − 0.30 = 25%. Full Kelly says risk 25% per trade. Half Kelly = 12.5%. Quarter Kelly = 6.25%.
Most traders would use quarter Kelly (6.25%) for the smoothest equity curve while still capturing meaningful growth.
Frequently Asked Questions
What is the Kelly Criterion in simple terms?
It's a formula that tells you exactly how much to bet based on your edge. If you have a 60% chance of winning and your wins are bigger than your losses, Kelly tells you the optimal bet size to grow your account as fast as possible without going broke.
Why do traders use half Kelly instead of full Kelly?
Full Kelly maximizes long-term growth but produces extreme drawdowns — sometimes 50%+ drops. Half Kelly gives you about 75% of the growth rate with much smaller drawdowns. It's the sweet spot between growth and emotional survival.
How many trades do I need to calculate Kelly accurately?
At minimum 50 trades, ideally 100+. Your win rate and average win/loss ratio must be statistically reliable. Using Kelly with only 10-20 trades is dangerous because the inputs aren't stable yet.
Can the Kelly Criterion give a negative number?
Yes. A negative Kelly means you have a negative edge — you're expected to lose money. If Kelly is negative, you shouldn't be trading that strategy at all. Fix the strategy first, then come back and size it.
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Disclaimer: This calculator is for educational purposes only and does not constitute financial advice. Trading involves substantial risk of loss. Past performance does not guarantee future results. Always do your own research and consult with a licensed financial advisor before making investment decisions.