Kelly Criterion: The Ultimate Staking Strategy

The Kelly Criterion is a mathematical formula that tells you how much of your bankroll to stake on a bet based on your estimated edge. Developed by John Kelly at Bell Labs in 1956, it was originally designed for information theory, but bettors and investors quickly realised it works brilliantly for sizing wagers.

This guide covers the formula, a worked example, fractional Kelly approaches, and how to combine the Kelly Criterion with value betting for long-term bankroll growth.

The Kelly Criterion Formula

The formula is:

f = (bp - q) / b

Where:

• f = the fraction of your bankroll to stake
• b = the decimal odds minus 1 (the net odds)
• p = your estimated probability of winning
• q = the probability of losing (1 - p)

The output tells you what percentage of your current bankroll you should bet. If the result is zero or negative, the formula is telling you there is no edge and you should not bet at all.

Worked Example

You find a bet at decimal odds of 2.50 (which means b = 1.50). You believe the true probability of winning is 45% (p = 0.45), so the probability of losing is 55% (q = 0.55).

f = (1.50 x 0.45 - 0.55) / 1.50

f = (0.675 - 0.55) / 1.50

f = 0.125 / 1.50

f = 0.0833

The Kelly Criterion recommends staking 8.33% of your bankroll on this bet. If your bankroll is 1,000 pounds, that is a stake of roughly 83 pounds.

Notice how the formula only returns a positive number when you have an actual edge. If your estimated win probability were 35% instead of 45%, the result would be negative, meaning the bet offers no value.

Full Kelly vs Fractional Kelly

Full Kelly

Staking the exact percentage the formula recommends. This maximises long-term bankroll growth in theory, but it can be extremely volatile in practice. Full Kelly can recommend stakes of 15-20% or more on strong edges, which leads to significant swings.

Half Kelly

Many experienced bettors use half Kelly (multiply the result by 0.5). In the example above, you would stake 4.17% instead of 8.33%. This reduces variance substantially while still capturing most of the long-term growth benefit. Research shows that half Kelly achieves roughly 75% of the growth rate with significantly smoother results.

Quarter Kelly

Even more conservative. Useful if your probability estimates are uncertain or if you are betting on a large number of events simultaneously. Quarter Kelly keeps drawdowns small and is easier to stick with psychologically.

Why the Kelly Criterion Works

• It sizes bets proportionally to your edge. Bigger edge means bigger stake, smaller edge means smaller stake.
• It prevents ruin. The formula never recommends staking your entire bankroll because the fraction is always less than 1.
• It accounts for odds. Two bets with the same probability but different odds will get different stake sizes.
• It forces discipline. You only bet when the formula returns a positive number, which means you need a genuine edge.

Common Mistakes with Kelly

• Overestimating your edge. The formula is only as good as your probability estimates. If you think a bet has a 50% chance of winning but it is really 42%, full Kelly will tell you to over-stake.
• Using full Kelly without the bankroll or temperament for it. The swings can be brutal. A losing streak of 5-10 bets at full Kelly can cut your bankroll in half.
• Ignoring correlated bets. Kelly assumes each bet is independent. If you are betting on multiple outcomes in the same match, you need to adjust.
• Not updating your bankroll. Kelly stakes should be recalculated based on your current bankroll, not your starting bankroll.

Combining Kelly with Value Betting

The Kelly Criterion is most powerful when paired with a reliable way to identify value bets. Value exists when the true probability of an outcome is higher than what the odds imply. OddsNotifier's EV Scanner calculates expected value across 250+ bookmakers, showing you exactly where the market is offering odds that exceed the true probability.

Once you have identified a positive EV bet, you can plug the probability estimate and odds into the Kelly formula to determine your stake size. This two-step process gives you a complete betting system: first find the edge, then size the bet correctly.

You can also use OddsNotifier's free tools to compare odds and spot value manually, then apply Kelly to those selections.

Practical Tips for Using Kelly

• Start with quarter or half Kelly until you trust your probability estimates.
• Keep a detailed record of your bets and actual win rates. Compare them to your predictions over at least 500 bets.
• Set a maximum stake cap (e.g., 5% of bankroll) regardless of what the formula says. This protects against estimation errors.
• Recalculate your bankroll after every session. Kelly is designed to work with your current bankroll, not a fixed number.
• Accept that Kelly is a long-term strategy. Short-term results will vary. The edge shows up over hundreds of bets, not dozens.

Wrapping Up

The Kelly Criterion gives you a mathematically sound way to size your bets based on your actual edge. Whether you use full Kelly, half Kelly, or quarter Kelly depends on your risk tolerance and how confident you are in your probability estimates.

The formula is straightforward, but getting it right depends on having accurate probability estimates and consistent odds comparison. Combine Kelly staking with positive expected value bets, and you have a framework for steady, sustainable bankroll growth over the long run.