How much should I bet if I think I have an edge?
Kelly sizing stakes the fraction of bankroll that maximizes long-run growth for your edge. For a binary contract at price c with win probability p, full Kelly is (p − c) ÷ (1 − c) of bankroll.
Estimates are noisy, so most traders bet a fraction of Kelly and cap any single position. The calculator shows full Kelly, your adjusted fraction and the capped stake in dollars and contracts.
- Best for
- Sizing positive EV trades rationally
- Primary output
- Recommended stake and contracts
- Use before
- Submitting an order after EV review
Key points
- Computes full Kelly, your Kelly fraction and a hard cap
- Built for binary contracts that pay $1.00
- Gives the stake in dollars and contracts
Method and assumptions
What Kelly sizing does
Kelly sizing maximizes long-run bankroll growth when your probability estimate is right. In a prediction market, the edge is the gap between your probability and the price.
Full Kelly assumes the estimate is exact, so its stakes are large and its swings deep. Fractional Kelly and a hard cap give up some growth for much smaller drawdowns when the estimate is off.
- Full Kelly: the growth-maximizing fraction
- Fractional Kelly: less damage from a wrong estimate
- Hard cap: no single idea dominates the book
How to use Kelly safely in prediction markets
Confirm the trade is positive EV first. Then pick a Kelly fraction that matches how much you trust the estimate: half or a quarter is common for a model that is useful but noisy.
Set a hard cap for correlated risk. Several open positions can depend on the same event, and a cap keeps any one of them from taking too much of the bankroll.
- Confirm the trade is positive EV.
- Choose a Kelly fraction for your estimate quality.
- Set a hard cap from your risk policy.
- Check overlap with positions you already hold.
Worked Kelly example
A contract trades at $0.41 and you estimate 55%. Full Kelly is (0.55 − 0.41) ÷ (1 − 0.41) = 23.73% of bankroll. At half Kelly, that becomes 11.86%.
The 8% hard cap is lower, so it sets the size: $400 of a $5,000 bankroll, or 975.61 contracts at $0.41. Without the cap, half Kelly would stake $593.
- A strong edge on a small bankroll is still a small stake
- When the cap binds, the cap sets the size, not the formula
- Contracts turn the fraction into an order you can place
Kelly mistakes to avoid
The costliest mistake is an inflated probability. Kelly scales the stake with the edge you enter, so an overstated edge is bet at full strength.
Use the capital set aside for this strategy as bankroll, not your net worth. Kelly fractions are fractions of the money at risk in the strategy.
- Using full Kelly when your model quality does not justify it
- Ignoring correlation with other open positions
- Treating bankroll as total wealth instead of strategy capital
- Skipping hard caps because the formula feels authoritative
Why half Kelly: Half Kelly keeps about three quarters of full Kelly’s long-run growth with roughly half the volatility, which is why many traders start there.
Frequently asked questions
Should I use full Kelly on prediction markets?
Usually only if your probability estimates are unusually reliable and your exposure is well diversified. Most traders are better served by fractional Kelly and a hard cap.
Why can the calculator return zero or a very small size?
The edge is small or negative at this price, or your Kelly fraction and hard cap cut the stake down.
Does Kelly guarantee better outcomes?
No. It is a long-run sizing framework, not a guarantee. If your edge estimate is wrong, the Kelly stake is wrong too.
What bankroll should I enter?
Use capital allocated to this strategy or account, not your full net worth. Kelly only makes sense against the bankroll actually at risk.