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Kelly Criterion Calculator

Calculate optimal position size using the Kelly Criterion based on win probability and average win/loss ratio.

Kelly Criterion Calculator

Calculate optimal position size using the Kelly Criterion based on win probability and average win/loss ratio.

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Risk threshold.

Guide

Using the Kelly Criterion for optimal position sizing

Kelly Criterion formula: f* = (p × b - q) / b, where p = win probability, q = loss probability, b = win/loss ratio.
Kelly Criterion maximizes long-term portfolio growth but can be very volatile. Full Kelly assumes perfect knowledge of win probability and win/loss ratio.
Use fractional Kelly (typically 25-50% of full Kelly) to reduce volatility while retaining most of the growth benefit. Half-Kelly is common.
Win probability and win/loss ratio must be estimated accurately. Overestimating edge leads to over-sizing and increased risk of ruin.
Kelly Criterion works best for repeated, independent bets with known edge. For single trades or uncertain edges, use more conservative sizing.

Frequently Asked Questions

Kelly Criterion, optimal position sizing, and long-term growth

What is the Kelly Criterion?

The Kelly Criterion is a formula that determines the optimal position size to maximize long-term portfolio growth, based on win probability and win/loss ratio.

How is Kelly Criterion calculated?

f* = (p × b - q) / b, where p = win probability, q = 1 - p (loss probability), and b = average win / average loss (win/loss ratio).

Why use fractional Kelly instead of full Kelly?

Full Kelly maximizes growth but creates high volatility and risk of large drawdowns. Fractional Kelly (25-50% of full) reduces volatility while retaining most growth benefits.

What if Kelly suggests a negative percentage?

Negative Kelly means the strategy has negative expected value (no edge). Avoid the trade or revise your strategy. Kelly only works for positive expected value situations.

How accurate do win probability and win/loss ratio need to be?

Very accurate. Small errors in estimates lead to large errors in position sizing. Use historical data, backtesting, or conservative estimates. When uncertain, use fractional Kelly or more conservative sizing.

Can I use Kelly for single trades?

Kelly assumes repeated, independent bets. For single trades, Kelly may not apply directly. Use Kelly for strategies with many similar trades, or combine with other position sizing methods.

What is the risk of using full Kelly?

Full Kelly can lead to large drawdowns, high volatility, and risk of ruin if estimates are wrong. It assumes perfect knowledge and can be psychologically difficult to follow during drawdowns.

How does Kelly compare to fixed position sizing?

Kelly adjusts position size based on edge (win probability and win/loss ratio), while fixed sizing uses constant risk per trade. Kelly maximizes growth but requires accurate edge estimates.

Should I recalculate Kelly for each trade?

If win probability or win/loss ratio changes significantly, recalculate. For consistent strategies, use average win probability and win/loss ratio across all trades.

What are limitations of Kelly Criterion?

Kelly assumes known, constant edge; independent bets; and no transaction costs. Real trading has uncertainty, correlation, and costs. Use fractional Kelly and combine with other risk management methods.

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Kelly Criterion Calculator

Calculate optimal position size using the Kelly Criterion based on win probability and average win/loss ratio.

How to use Kelly Criterion Calculator

Step-by-step guide to using the Kelly Criterion Calculator:

Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Kelly Criterion Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Kelly Criterion Calculator is designed to be user-friendly and provide instant calculations.

Is the Kelly Criterion Calculator free to use?

Yes, the Kelly Criterion Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Kelly Criterion Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Kelly Criterion Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.