What Is Kelly Staking?
The Kelly Criterion is a mathematical formula created to determine the optimal stake size when you have a measurable edge. Instead of betting fixed amounts or percentages, Kelly adjusts your stake based on:
- Your estimated probability of winning
- The odds you are taking
- Your current bankroll
The aim is simple: stake more when the edge is high and stake less when the edge is small, all while avoiding overexposure. Kelly staking is popular among professional gamblers, poker players and financial traders because it ties risk directly to expected value.
The Kelly Formula (Explained Simply)
The classic Kelly formula is:
f* = (b × p − q) / bWhere:
b= decimalOdds − 1p= your estimated chance of winningq= 1 − p
The output f* is the fraction of your bankroll to stake.
If the number is negative, the bet is not value and should be skipped.
Example: Kelly in Action
Suppose you believe a tennis player has a 60% chance of winning a match and the exchange is offering odds of 2.20.
- b = 2.20 − 1 = 1.20
- p = 0.60
- q = 0.40
Kelly fraction = (1.20 × 0.60 − 0.40) ÷ 1.20 Kelly fraction = (0.72 − 0.40) ÷ 1.20 = 0.32 ÷ 1.20 ≈ 0.266
This means Kelly suggests staking 26.6% of your bank. Most traders immediately scale this down (more on that shortly).
Why Pure Kelly Is Often Too Aggressive
Full Kelly maximises long-run growth mathematically, but in practice it leads to high volatility. Even professional bettors rarely use it because:
- Edge estimates are never perfect
- Odds vary from market to market
- Losing streaks can become emotionally and financially difficult
That’s why most experienced traders prefer:
- Half Kelly (50%) – reduces variance significantly
- Quarter Kelly (25%) – far smoother, still strong over the long term
Using the Smarter Trades Kelly Staking Calculator
The calculator on Smarter Trades lets you:
- Enter your bankroll
- Enter your odds
- Estimate your win probability
- See full, half and quarter Kelly stakes instantly
- View expected value (EV) and profit estimates after commission
Try it here: Open the Kelly Staking Calculator
When Kelly Staking Works Well
1. When Your Edge Is Consistent
Kelly is most effective when you have a repeatable advantage, such as a model, historical pattern or well-researched strategy. It compounds efficiently when bets follow the same logic over hundreds of trials.
2. When You Want Rules-Based Staking
Kelly removes emotion. You don’t decide your stake based on confidence or mood – the maths tells you what to do.
3. When You Track Bankroll Growth
Because Kelly stakes adjust as your bankroll changes, traders who track their results closely get more accurate and consistent stake sizing.
When Kelly Can Go Wrong
1. Overestimating Your Edge
If you think your edge is bigger than it really is, Kelly becomes dangerous. Even small estimation errors lead to oversized stakes and heavy swings.
2. High-Odds Selections
Kelly can produce very large stakes at high odds, even when the probability estimate is uncertain. Caution is essential.
3. Emotional Stress
Full Kelly produces high volatility. Traders who struggle with swings often lose discipline and override their rules, undermining the strategy entirely.
The Best Approach for Most Betfair Traders
For real-world exchange trading, the most stable and popular option is:
- Quarter Kelly for normal trading
- Half Kelly for extremely confident value positions
- Full Kelly only when you have a proven long-term edge and strong data
These fractions significantly reduce volatility while keeping the long-term growth benefits of Kelly staking.
Frequently Asked Questions
Does Kelly guarantee profit?
No system guarantees profit. Kelly works only when your estimated edge is real and long-term variance balances out.
What if I don’t know my exact win probability?
Then Kelly should be used cautiously. If your probability estimates are uncertain, use a small percentage of Kelly (e.g. 25% or less) or use fixed-stake strategies instead.
Can Kelly be used for lay betting?
Yes – the maths applies to both sides of the market as long as you convert the lay odds and implied probabilities correctly, and account for commission.
How often should I update my bankroll?
Many traders update daily or weekly rather than after every bet. This keeps records tidy while still reflecting meaningful changes in bank size.
Where do I find the Kelly calculator?
Right here: Smarter Trades Kelly Staking Calculator.