Bankroll and risk
Kelly criterion
Also called Kelly, full Kelly, fractional Kelly
Kelly answers 'how much', given that you already know a bet is good. The full formula is f = (bp − q) / b, where b is the net decimal odds, p your win probability and q its complement. A 55% chance at even money suggests staking 10% of bankroll.
Full Kelly is optimal only if your probability is exactly right. It never is, and overestimating your edge produces stakes that are wildly too large — Kelly is unforgiving in that direction, since the growth curve falls off far faster above the optimum than below it.
In practice, serious bettors use a quarter or a half of the Kelly recommendation, which sacrifices a small amount of theoretical growth for a large reduction in volatility. WeBall's engine defaults to quarter Kelly with a hard cap at 5% of bankroll for the same reason.
Want the full version? Read the in-depth guide, with worked examples and the math.
See also
- Bankroll — The money set aside specifically for betting, separate from everything else you own.
- Expected value — The average result of a bet per unit staked if it could be repeated indefinitely.
- Variance — The spread of outcomes around your expected result — why good bettors have terrible months.
- Flat betting — Staking the same amount on every bet regardless of how good it looks.