The Kelly criterion: sizing bets to your actual edge
By George Boyle · Updated 2026-08-21 · The Sport Stack
The Kelly criterion is a formula for how much of a bankroll to stake on a bet, given your estimated edge and the odds offered. It maximises long-run growth rate, but full Kelly is violently volatile and assumes your edge estimate is exactly right — which is why most disciplined bettors stake a fraction of it, commonly a quarter or an eighth.
The formula and the idea
The Kelly criterion answers one question: given an edge, what fraction of your bankroll maximizes long-run growth? For a bet at decimal odds b with win probability p, the Kelly fraction is (bp − (1 − p)) / b. Bigger edge → bigger bet; longer odds → smaller bet at the same edge. Bets with no edge get zero, and Kelly never risks the full bankroll.
Why nobody sane bets full Kelly
Full Kelly is optimal only if your probability estimates are exactly right. They never are. Overestimate your edge — which every model does some of the time — and full Kelly systematically overbets, which is how bankrolls die. Full Kelly also produces brutal drawdowns even when the estimates are right: a 50% bankroll drawdown is routine on the optimal path.
The practical answer is fractional Kelly: bet a quarter or an eighth of the Kelly fraction. You give up a little theoretical growth for a huge reduction in variance and in sensitivity to estimation error. The right fraction follows how much the estimate can be trusted, not just its point value — thinner evidence, smaller fraction.
Sizing should track confidence
A subtler point the formula hides: the input probability should already be shrunk toward the market when your evidence is thin. A small-sample edge estimate deserves both shrinkage and a smaller Kelly fraction. Sizing from a backtest should start from the lower bound of the confidence interval on the edge, not the point estimate — the difference between a system that survives estimation error and one that only worked in the spreadsheet.
Written by George Boyle, who builds The Sport Stack — the models, the public ledger and these explainers. Corrections and questions: hello@thesportstack.io. Who runs this.