The Kelly Criterion is a staking method designed to maximise long-term bankroll growth when the bettor has an accurate edge estimate.
The Kelly idea
Stake more when the edge is large and less when it is small. Do not bet when the estimated edge is negative.
The formula
For decimal odds, Kelly fraction = (bp - q) / b, where b is decimal odds minus one, p is the estimated win probability and q is one minus p.
Worked example
At decimal odds of 2.20 with a 50% estimated win probability, b is 1.20. The Kelly fraction is about 8.3% of bankroll.
Full and fractional Kelly
Full Kelly can create large swings when probabilities are uncertain. Half Kelly and quarter Kelly reduce volatility.
Model error
Kelly assumes your probabilities are accurate. Overconfidence can lead to excessive stakes.
Professional approach
Use conservative probability estimates, cap exposure and often apply fractional Kelly.