$/€ Kelly Criterion: Determine Optimal Bet Size
Lina Almans
02 May 2023
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Betting pros don’t see sports wagers as just a pastime – it’s a science. They believe the more you know, the easier it is to predict outcomes. That’s where the Kelly Criterion comes in.
What is The Kelly Criterion In Betting?
The Kelly criterion, or Kelly strategy, is a way to determine the optimal betting amount based on your bankroll and previous wins/losses.
If the odds are better than what the Kelly suggests they should be, then it might be a good time to make a wager – it’s also known as a Value Bet.
But hold your horses! It only works well for bets with two outcomes, like heads or tails. If you try to use it for more complex bets, like a three-team parlay, you’re gonna end up broke.
But hold your horses! It only works well for bets with two outcomes, like heads or tails. If you try to use it for more complex bets, like a three-team parlay, you’re gonna end up broke.
How Does Kelly Criterion Work?
Think of it like this: you wouldn’t bet all your cash on one game, would you? Instead, you only bet a small percentage of your bankroll each time.
No matter if you win or lose, the stake you bet stays the same.
The Kelly Criterion uses your bankroll size, odds of winning, and probability of losing to calculate the best amount to bet. This way, you’re maximizing your profits over the long run.
What is Kelly’s Formula
To calculate your stake size using the Kelly Criterion, use this formula:
F = (BP– Q) / B
P – the probability of winning,
Q – the probability of losing (1-P),
B – the decimal odds of the event minus one.
Just plug in the numbers and you’re good to go! But it only works if the bookie got it wrong.
How to Use Kelly’s Strategy
Alright, there’s a match coming up between Man City and Real Madrid. Bet365 has set odds of 2.3 for Man City to come out on top, which translates to a 43.47% probability of winning. But hold up, you’ve got some inside info and reckon that Man City has a much better chance of winning at 60%.
| Scenario | Bookie Odds | Your Probability | Recommended Bet |
| Man City vs. Real Madrid | 2.3 (43.47%) | 60% (0.6) | Bet 13.9% |
Let’s plug in the numbers to get the stake size:
F = (2.3 x 0.4 – 0.4) / 2.3
F = 0.139 or 13.9% of your bankroll
So, there you have it, based on the Kelly Criterion, you should bet 13.9% of your bankroll on Man City to win.
Kelly’s Pros and Cons
| PROS | CONS |
| Makes your bankroll work for you in the long run | Risky business if you don’t know what you’re doing |
| Saves you from going broke during a losing streak | Tricky to find the perfect bet size |
| Bet bigger as you grow richer | Requires solid insight into the probability of winning |
| Make it fit your risk-taking style | Putting it into practice can be a hassle |
Kelly vs. Martingale and Fibonacci Strategies
The Martingale and Fibonacci strategies are all about upping your bet size until you finally hit the win.
Kelly Criterion: It’s the experienced bettor’s choice — maximizes long-term growth (by calculating the optimal stake size) while minimizing the risk of a bad run. But estimating the odds can be a tricky business.
Martingale Strategy: Double the stakes until you hit the prize. But beware, it takes a chunk of change to win big, and a losing streak can empty your pockets faster than you can say “double down”.
Fibonacci Strategy: You start with a bet that’s 1% of your bankroll and increase your bet size to the sum of your two previous bets after each loss.
FAQ
The Kelly Criterion is a betting strategy that helps you determine how much you should bet on each wager. It calculates the optimal wager based on your bankroll and past betting results.
As a general rule, aim for a bankroll that’s 10 to 15 times the size of your typical bet. So, if you usually bet $10, aim for a bankroll of $100 to $150.
Nope, no betting strategy can guarantee a win. But the Kelly Criterion can help you make more informed bets and increase your chances of coming out ahead in the long run.
