Kelly Criterion Calculator — Optimal Position Sizing

The Kelly Criterion is a mathematical formula that determines the optimal fraction of capital to risk per bet or trade to maximise long-term wealth growth. It was developed by John L. Kelly Jr. at Bell Labs in 1956 and has since been widely adopted by professional gamblers, investors, and traders.

Full Kelly maximises long-term growth mathematically, but it produces high volatility and large drawdowns. Half Kelly (risking 50% of the Kelly amount) achieves approximately 75% of the optimal growth rate while cutting drawdowns roughly in half — a much smoother equity curve in practice.

The Kelly percentage is positive only when you have a genuine edge: Win Rate > 1 ÷ (1 + R:R). For a 1:2 R:R, you need a win rate above 33.3%. For a 1:1 R:R, you need above 50%. A negative Kelly value means your strategy has no edge.

Kelly is a guide, not a rule. Many professionals cap their risk at 1–2% regardless of what Kelly suggests, because real-world win rates and R:R ratios fluctuate. Kelly is most useful for confirming you have an edge and understanding the upper bound of sensible risk per trade.

Full Kelly maximises long-term geometric growth but creates extreme short-term volatility — drawdowns of 50%+ are common even on winning strategies. Most professionals use half-Kelly or quarter-Kelly (25–50% of the recommended size). This sacrifices some return in exchange for much smoother equity curves and lower maximum drawdown, making the strategy psychologically easier to follow during losing streaks.