Kelly Criterion Calculator

How to use the Kelly Criterion for position sizing

The Kelly formula gives the fraction of an account that maximizes long-run compound growth, given a win rate and a payoff ratio. A result at or below zero means the numbers show no edge, and the formula's answer is to risk nothing.

The rows show why many traders size below it. Growth rises slowly as you approach full Kelly while the swings keep growing, so half Kelly gives up about a quarter of the growth rate for half the risk. The calculator works out that share for your own numbers instead of assuming it.

Kelly % = W − (1 − W) ÷ R, where W is the win rate and R is average win ÷ average loss.

Worked example

Your records show 55% winners, an average win of $600 and an average loss of $400. The payoff ratio is 1.5, so Kelly is 0.55 − 0.45 ÷ 1.5, which is 25%.

On a $25,000 account, full Kelly risks $6,250 on a trade and half Kelly risks $3,125. Those are very large stakes for one trade, which is a warning about the inputs as much as about the method.

What the result does not account for

• Errors in your win rate and payoff. Kelly assumes you know them exactly, and overestimating your edge leads to oversizing.
• Trades that are not independent, such as several positions in one sector at the same time.
• Gaps past your stop, because the formula assumes each loss is exactly the average.
• How much drawdown you can stand. The formula only considers long-run growth.

Frequently asked questions