The Kelly betting strategy is a formula which tells you exactly how much you should stake. The formula can help assess your probabilities of winning and losing.

In this article, we’ll tell you everything you need to know about the Kelly strategy. We’ll explain how the formula works, its pros and cons, and give you tips on using it effectively.

## Understanding Kelly Betting Criterion

A Kelly bet revolves around using the Kelly Criterion. Although similar criteria existed previously, the actual Kelly Criterion was identified by JL Kelly back in 1956. Ever since, it’s been popular with bettors and investors alike.

The Kelly Criterion is a mathematical formula. We’ll explain that formula in detail in the next section, but you essentially plug your numbers in, and it tells you your bet amount. Specifically, it gives you a stake which is directly in proportion to your chances of success, as implied by the odds you’re using.

One of, if not the most common reason sports bettors fail is because they put random stakes down. This either leads to betting too much, and blowing up your account, or betting too little and failing to build enough profits to sustain inevitable future losses.

Of course there’s still risk involved as in all forms of gambling. Kelly betting revolves around expected value, after all, but there’s always a strong chance results won’t go your way. Still, it does give you some incredibly useful guidance for your staking, which at least eliminates the aforementioned problem.

## The Math Behind Kelly Betting

Many betting systems simply involve increasing your stakes incrementally, such as the famous Martingale System. The Kelly criterion is more involved than that. This involves using a full mathematical formula to calculate your stakes for every wager you place.

Here’s the Kelly betting formula for you:

f = (bp – q) / b

And here are the four components

• f = your stake size (percentage of bankroll)
• b = the decimal odds of the bet in question
• p = the implied probability of winning the wager
• q = the implied probability of losing the bet

‘f’ is obviously what you’re trying to calculate, and for ‘b’ you just plug in the decimal odds of your wager.

‘p’ is actually just your odds again, since that’s telling you your chances of winning. Finally, ‘q’ is simply 1 – p (i.e. you’re just subtracting your chances of winning from the overall probability, which is 1).

Let’s run through an example, to illustrate exactly how Kelly betting works.

The Chargers are playing the Chiefs in the NFL, and you fancy underdogs LA to win. Their odds are +150. You can use our free calculator to convert these to decimal odds (2.5), and get their implied probability, which is 40%. By simply doing this, you have everything you need for the Kelly criterion formula:

• b = 2.5
• p = 0.40
• q = 0.60

f = (2.5*0.40 – 0.60) / 2.5

2.5 x 0.40 is 1, minus 0.60 is 0.40. Divide this by 2.5, and you get 0.16.

That final figure – which is ‘f’ – is the percentage of your bankroll you should stake on this wager. In this case, it’s 16%. If you’ve got \$100 in your account, therefore, you should bet \$16 on the Chargers to win here.

## Full Kelly vs. Fractional Kelly Criterion

The version of Kelly criterion betting outlined above is what’s known as the ‘Full Kelly’. Many bettors, however, prefer to use the Fractional strategy instead.

The name is pretty literal here. You’re still using the Kelly Criterion system to arrive at your stake size. But when you get that figure (‘f’, in the equation) you only bet a fraction of that amount, rather than what the equation tells you to.

The thinking here is that Full Kelly is simply too aggressive. It might work in theory, but the inherently risky nature of sports betting can hurt you significantly.

Let’s say a wager has an implied winning probability of 80%. The Full Kelly will end up telling you to wager quite a lot of your bankroll here, since your chances are so high. This being gambling, however, you could absolutely still lose. Suffer too many of those losses without enough wins in between, and you can easily blow up your account.

The Fractional Kelly criterion formula aims to reduce your risk by also reducing your stake size. The amount you reduce it by is up to you. The most common choices are the Half Kelly, Quarter Kelly, and 1/8 Kelly, meaning you reduce ‘f’ by ½, ¼, and ⅛ respectively.

The further you go down that list, the less exposure you’ll have to significant losses. In turn, however, your winnings will also be lower. You therefore need to decide your own risk tolerance, and go with the Fractional Kelly strategy that works for you.

The Journal of Quantitative Analysis in Sports gives great examples of using both the full and fractional systems.

## How to Effectively Apply Kelly Criterion Betting

The Kelly Criterion certainly has a sound mathematical basis. It is also, however, only an equation, and not a silver bullet to success. You must still exercise your own judgment and skill in several key ways, as you can see below.

### Double Check

As you get more experienced in Kelly criterion formula, you’ll be able to tell when the figure you end up with seems fishy, then go back and fix your mistake. While you’re just getting started, however, you won’t have that knowledge.

Instead, it is completely imperative that you check and double-check your calculations here, to ensure you’re not staking too little or – more importantly – too much. Using an actual Kelly Criterion calculator is the safest route of all.

You might start with the Full Kelly criterion, but feel free to make adjustments as you go along, and potentially move to a Fractional Kelly.

Let’s say you start with a \$100 bankroll, and get that up to \$200. You’ve doubled your money, which is already a fantastic return.

Stick to Full Kelly betting, and – since the equation is telling you to bet a percentage of your bankroll – your stakes (and risk) will be growing higher and higher here. This could be the perfect point, therefore, to switch to the Half Kelly instead, and also half your exposure in the process. Hopefully your wagers will keep paying off, but – even if they don’t – you’re not giving away all those profits you just gained too quickly.

### Balanced Risk Approach

This is an essential part of smart sports betting in general. But it’s particularly important with the Kelly Criterion betting system, when you are literally waying up your probabilities of success every single time you run the equation.

To an extent, the Kelly Criterion is designed to balance risk for you. It lowers your stake size for harder bets, and vice versa.

In reality though, you still need to ensure for yourself that you’re getting a healthy balance. That’s because, as noted, wagers definitely won’t always turn out the way those probabilities suggest.

You should therefore try to place enough higher-risk, higher-reward wagers to fund the unexpected losses you’ll suffer along the way. You may also need to reduce your stakes on markets that seem close to ‘sure things’ – just because the formula tells you to wager 50% of your bankroll on a single wager, for example, doesn’t necessarily mean it’s a good idea.

### Current Odds

Last but certainly not least, remember that odds are always changing. You may have calculated your stake using one price, and therefore one set of implied probabilities, without actually placing the wager right then.

Before sticking that bet down, it is imperative that you check the odds are the same. If they’ve changed, be sure to change your Kelly betting calculation too.

## Applying Kelly Betting Formula in Different Scenarios

The Kelly Criterion was actually originally invented for long-term financial investments. It has simply been picked up by gamblers since then, since its objective – telling them how much of their available money to spend – is just as relevant. Here’s how Kelly betting works for the two most popular forms of gambling.

### Sports Betting

We’ve obviously focused on using the Kelly Criterion for sports betting here, since that is indeed its most popular application in gambling.

While we’ve given an NFL betting example earlier, Kelly betting can be carried out on any market you please. Whatever the sport or bet type, you simply get the fixed odds for the bet you want to place, plug them into the formula, and use the result to determine your stake size for that wager.

### Casino Games

Unfortunately, using the Kelly Criterion for casino games doesn’t work as well as it does for sports betting. The main problem is that – whatever game you play – there’s a house edge built right into the odds. That’s how casinos make money after all.

Because of this, the math in the formula simply doesn’t work. Let’s say you play a casino game with a house edge of only 1%. This would give you implied odds of 1.01. In this case:

• b (decimal odds of the bet) = 0.01 (1.01 – 1)
• p (implied probability of winning) = 0.99
• q (implied probability of losing) = 0.01

If we plug these numbers into the formula, we get:

f = (0.01*0.99 – 0.01) / 0.01

This unfortunately equals -0.01. Since there’s a minus there (implying a negative stake), the Kelly Criterion is basically telling you not to place the bet.

There are other systems you can use to help guide your casino gambling, such as the Labouchere or the Paroli. Kelly betting won’t work on the roulette wheel or any similar casino game, though.

## Pros & Cons of Kelly Criterion

We’re not here to talk you into Kelly betting. Instead, we’ve sought to give you a fair and balanced view throughout this article. To help summarize, here are the main pros and cons of using the Kelly Criterion.

Pros:

• Gives you excellent guidance in your staking, rather than simply placing bets of random sizes
• Most of the hard work has been done for you – you just plug your numbers into the formula, and are given your stake size
• Scales automatically depending on the risk of your bet, and your chances of success, from evens all the way up to long-shots
• Can be used on all sports and bet types
• Sound mathematical basis

Cons:

• More complicated than other systems (although using a Kelly Criterion betting calculator helps with this)
• Full Kelly strategy arguably suggests stakes that are too high (Fractional Kelly betting can negate this)
• Doesn’t work on casino games, due to their built-in house edge

## Is Kelly Betting Worth Trying?

Deciding on your stake sizes is something which both experienced and novice bettors can struggle with. At best, we often simply think we’ll put ‘low stakes’ on riskier bets, and ‘higher stakes’ on seemingly safer picks. Kelly betting removes the guesswork completely, by telling you exactly what percentage of your bankroll to stake on each and every wager.

At first glance, when confronted with an intimidating-looking formula, it might seem complicated. It’s really not. You’ll get the hang of plugging in your numbers in no time, and using a Kelly calculator makes the process even easier.

There is one notable caveat here. The most common criticism of the Kelly Criterion is that it suggests stakes that are too high. As we saw earlier, even a fairly low-risk +150 wager can still see you wagering 16% of your entire bankroll. Like all betting systems though, the Kelly Criterion can be tweaked to fit your needs, and – if the Full Kelly Betting system does seem too risky – you can switch to the Fractional Kelly easily enough.

Overall, Kelly betting doesn’t guarantee success more than any other system with a casino or sports bet, and won’t actually improve your chances of winning. It does, however, offer guidance in your staking which many punters will find invaluable.