The Kelly Criterion Calculator helps you determine the mathematically optimal position size based on your edge and odds. Developed by John Kelly at Bell Labs, this formula maximizes long-term growth while avoiding ruin.
The Mathematics of Growth
The Kelly formula considers your win probability and payoff ratio to calculate what percentage of your bankroll to risk on each trade. It is the gold standard for sizing bets in games of chance and financial markets alike. While full Kelly is mathematically optimal for maximizing the growth rate of your capital, it can lead to significant volatility.
Fractional Kelly Strategy
Most professional traders use fractional Kelly (such as 25% or 50% of the suggested size) to reduce volatility and account for the fact that our estimates of win probability are rarely perfect. This conservative approach provides a safety buffer while still ensuring that you are sizing your positions according to your mathematical edge.
Finding Your Edge
This tool helps you find the balance between growing your portfolio aggressively and avoiding excessive risk. If the calculator returns a negative number, it means you do not have a mathematical edge on the trade and should not take it at any size.