Kelly Criterion: How To Use It To Win Your Bets【2025】

This system is based on pure mathematics but some may question if this math, originally developed for telephones, is effective in the stock market or gambling arenas. An equity chart can demonstrate the effectiveness of this system by showing the simulated growth of a given account based on pure mathematics. In other words, the two variables must be entered correctly and it must be assumed that the investor can maintain such performance. All information shared was written to teach profitable betting strategies and fight against gambling addiction. – If your total betting balance is $500, then according to the Kelly Criterion staking formula, you should bet 8.25% of $500, which is $41.25. In the next step, you need to substitute each data/info about your betting opportunity into the Kelly Criterion formula.

• Created by John Kelly in 1956, this formula helps you maximize your long-term growth by balancing risk and reward.
• The Kelly Criterion is used to determine the optimal size of an investment, based on the probability and expected size of a win or loss.
• Understanding the advantages and limitations of the Kelly Criterion is essential for using it effectively in investment strategies.
• Our Kelly calculator helps serious sports bettors size their wagers scientifically rather than emotionally.

The Kelly criterion betting strategy has been studied and applied to a variety of different areas. It is somewhat conservative, but it allows you to diversify your betting, placing numerous bets on any given day, while minimising risk. This is a sensible way of handling the inevitable losing runs which occur, even if you have a favourable bet.

In the meantime, here are some tips for using the Kelly criterion the right way. When applying Kelly, the consequences of over-estimating your edge are serious, and as we mentioned earlier, in sports the probability of an outcome is imprecise. It is for this reason that most punters err on the side of caution, and use the more cautious strategy of ‘fractional Kelly’. This means that https://indiaroobet.com/ rather than bet the suggested percentage, you use a fraction of it, commonly a half (Half-Kelly) but it can be any fraction.

Suppose you’re analyzing a Champions League final match between Manchester City and Inter Milan. The odds the bookmaker offers for Man City to win as favorites are 1.9, putting the implied probability at 0.4 or 40%. However, based on your research and analysis, you estimated the likelihood of Man City winning at 0.6 or 60%. She likes nothing more than sharing tips and predictions on sports betting. Her other favorite sports include horse racing, snooker, and golf.

Consider Using Fractional Kelly

In the same year, it was said that Kelly published a paper titled “A New Interpretation of Information Rate,” which introduced the formula concept. This step is crucial to determining whether a wager is a value bet. Remember, Kelly Criterion is only effective when you spot a wager with a positive expected value. Comparatively speaking, the Kelly Criterion is the only betting system that allows bettors to adjust their bets based on how they feel about a specific bet.

Analysis of the Results

The Kelly equation assumes that you are comfortable with the possibility of significant fluctuations in your bankroll. Some bettors may find the suggested bet sizes too volatile for risk tolerance. Using the logarithmic utility function, the Kelly formula guides gamblers and investors to the sweet spot between the highest return and the lowest risk, helping them maximise their profits. Put another way, if you win more, bet more; if you lose more, back off. It’s a clever, mathematical system for determining bet sizes to help increase your chances of long-term betting success.

The percentage is a number less than one that the equation produces to represent the size of the positions you should be taking. For example, you should take a 5% position in each of the equities in your portfolio if the Kelly percentage is 0.05. This system essentially lets you know how much you should diversify. The Kelly Criterion strategy is said to be popular among big investors, including Berkshire Hathaway’s Warren Buffet and Charlie Munger, along with legendary bond trader Bill Gross. For this reason, many bettors choose to use the so-called Fractional Kelly staking method. – The numerator (bp – q) calculates your ‘edge’, which is the expected profit per dollar wagered.

Experienced bettors who have made substantial profits from sports betting and gambling know that it all comes down to basic mathematics. In a 1738 article, Daniel Bernoulli suggested that, when one has a choice of bets or investments, one should choose that with the highest geometric mean of outcomes. This is mathematically equivalent to the Kelly criterion, although the motivation is different (Bernoulli wanted to resolve the St. Petersburg paradox). Computations of growth optimal portfolios can suffer tremendous garbage in, garbage out problems. For example, the cases below take as given the expected return and covariance structure of assets, but these parameters are at best estimates or models that have significant uncertainty.

Unfortunately, your bankroll should be an amount you are comfortable risking as there is no formula to determine your bankroll when using the Kelly Criterion. For Kelly to work, you must have a positive edge, a value opportunity. If the edge is precisely zero, the Kelly Criterion recommends no bet be placed, and of course if the edge is negative, again there is no bet. According to the Kelly Criterion method, you should bet around 23.6% of your bankroll. Therefore, to win with your €1000 bankroll, the best bet is €236 on Manchester United. Here’s a real-world illustration to help clear up any remaining doubts.

As you can see, there’s no strategy (lever) which beats every other strategy more often than not for a single draw. The tables below show the nine equally-probable outcomes of a draw each pair of these three random variables. Don’t forget to check out my post on statistical models and betting markets. That’s why we pay a premium to insurance companies to haul away excess risk. Here’s the same 6% vs 5% investment with different levels of leverage. Now the components of Edge, NGD and Profit are broken out individually.