Question 1

What is the Kelly criterion?

Accepted Answer

The Kelly criterion is a formula that calculates the optimal fraction of your bankroll to stake on a bet to maximise long-term growth. Developed by John Kelly at Bell Labs in 1956, it considers your edge (probability × odds - 1) and the odds to determine the ideal stake.

Question 2

Should I use full Kelly or fractional Kelly?

Accepted Answer

Most professional bettors use fractional Kelly (typically half or quarter Kelly) because full Kelly leads to extreme variance. Half Kelly achieves about 75% of full Kelly's growth rate while halving the variance. Quarter Kelly is even more conservative with smoother equity curves.

Question 3

What if the Kelly criterion is negative?

Accepted Answer

A negative Kelly value means the bet has negative expected value — you should not place the bet. The odds do not offer enough value given the probability of winning.

Question 4

How accurate does my probability estimate need to be?

Accepted Answer

Accuracy matters significantly. Overestimating your edge by even a few percent can turn Kelly staking from optimal into dangerous. This is the main argument for fractional Kelly — it provides a margin of safety against probability estimation errors.