Kelly Criterion (Lite) – Bankroll Growth for Smart Gamblers
The Kelly Criterion is a formula for sizing bets when you believe you have an edge. Used well, it can maximise long-term bankroll growth. Used badly, it can blow you up. This “lite” version focuses on intuition, examples and safer variations for recreational players.
1. What the Kelly Criterion Tries to Do
Kelly is a bankroll strategy that answers one question:
“If I have an edge on a bet, what fraction of my bankroll should I risk to grow it as fast as possible over the long run?”
In theory, full Kelly:
- Maximises long-term growth rate of your bankroll.
- Avoids guaranteed ruin if your edge and odds are correctly estimated.
- Automatically bets more when your bankroll is bigger, less when it’s smaller.
In practice, full Kelly bets can be extremely aggressive and volatile – especially if your “edge” estimate is wrong (which it usually is in real-world sports betting and markets).
2. The Core Kelly Formula (In Plain English)
For a simple win/lose bet (like a sports moneyline), a common Kelly form is:
Optimal fraction to bet (f*) = (b × p − q) ÷ b
Where:
- b = net odds of the bet (decimal odds − 1). Example: +150 (2.50 decimal) → b = 1.5
- p = your estimated probability of winning
- q = probability of losing = 1 − p
You see a team at +150 (2.50 decimal).
The book’s implied win chance is about 40%. You believe they actually win about 45% of the time.
b = 1.5
p = 0.45
q = 0.55
f* = (1.5 × 0.45 − 0.55) ÷ 1.5
f* = (0.675 − 0.55) ÷ 1.5 ≈ 0.083
Full Kelly: bet about 8.3% of your bankroll.
On a $2,000 bankroll, that’s ~$166 on this single wager.
That’s a big chunk for one game – and it depends entirely on your 45% estimate being accurate. If your edge is smaller than you think, full Kelly can be dangerously aggressive.
3. Why Most People Use Fractional Kelly
Serious bettors and investors rarely use full Kelly. Instead, they:
- Use half Kelly (½ Kelly) or quarter Kelly (¼ Kelly).
- Cap bet sizes so a single event can’t destroy the bankroll.
- Assume their edge estimate is optimistic and scale down.
Fractional Kelly deliberately sacrifices some theoretical long-term growth in exchange for far lower volatility and smaller drawdowns when things go badly.
If you want to experiment with Kelly sizing at all, start at ¼ Kelly or less, and only with a separate “risk capital” bankroll that you genuinely can afford to lose.
4. When Kelly Does Not Make Sense
There are many situations where Kelly isn’t helpful and may even encourage overconfidence.
- No real edge: If you’re guessing or following hunches, your true p is usually the same as (or worse than) the market’s implied probability.
- Pure house games: For games with a fixed house edge (roulette, slots, baccarat, etc.), Kelly says the optimal bet is zero.
- Highly correlated bets: Multiple bets that all depend on the same outcome (e.g., parlays and props tied to the same game) are riskier than the formula assumes.
- Emotional tilt: Kelly assumes rational, consistent play. If tilt is a problem, any aggressive staking plan is dangerous.
Use simpler tools first
If you’re not consistently beating closing lines or proving an edge over thousands of bets, you’ll probably get more from:
These help you avoid the biggest leaks before you even think about advanced staking formulas.
5. Kelly vs Flat Betting vs % of Bankroll
Kelly is one tool in a bigger bankroll toolbox. Here’s how it compares to more common approaches:
| Approach | How It Works | Pros | Cons |
|---|---|---|---|
| Flat Betting | Same stake on every bet (e.g., 1 unit). | Simple, easy to follow, limited damage on bad runs. | Doesn’t adjust to edge or bankroll changes. |
| % of Bankroll | Bet fixed % every time (e.g., 1–2%). | Scales bets up and down with bankroll. | Doesn’t differentiate between strong and weak edges. |
| Full Kelly | Bet fraction based on edge and odds. | Theoretically maximises long-run growth. | Very volatile, sensitive to edge overestimation. |
| Fractional Kelly | Use a % of Kelly (½, ¼, etc.). | Lower volatility, more forgiving of mistakes. | Still assumes you can estimate edge reasonably well. |
6. A Practical “Lite Kelly” Checklist
If you still want to use Kelly ideas, treat them as a discipline tool – not a license to fire huge bets.
- Separate a small “edge hunting” bankroll from the rest of your finances.
- Only apply Kelly where you’ve tracked results and can justify an edge (e.g., closing-line value over hundreds of bets).
- Use fractional Kelly (½ or ¼) at most, and consider adding absolute max bet caps.
- Review results over long samples, not a handful of wins or losses.
- Pause betting if you’re on tilt, over-betting, or deviating from your plan.
Connect it to the rest of Gambling101
For deeper context:
- Expected Value (EV) for Gamblers – how to think about “edge” in the first place.
- House Edge in Gambling – why most casino games are negative-EV.
- Calculators Hub – use tools to sanity-check risk and exposure.
7. Kelly, Risk & Responsible Gambling
Kelly is popular with quants and sharp bettors, but it’s not required – or even recommended – for most casual players. The most important “edge” you can have is knowing when not to bet.
- Never treat Kelly as a shortcut to profits on games with a house edge.
- Don’t increase stakes to “catch up” when you’re behind – that’s tilt, not Kelly.
- Keep gambling firmly in the “optional entertainment” category, not financial planning.
- Stop and seek help if you’re hiding losses or feel out of control.
If gambling no longer feels like a light, optional hobby, visit Responsible Gambling for support and helplines in your region.
Nothing on this page is financial or investment advice. The Kelly Criterion is a mathematical concept, not a guarantee of profit. Real-world betting and markets are noisy, often efficient, and carry substantial risk – including the risk of losing your entire bankroll.