Calculator
Use the Kelly calculator only after you believe the trade has a real edge. Kelly is a sizing framework, not a method for creating edge out of thin air.
Market view
Bankroll rules
Set your bankroll, Kelly fraction, and hard cap. A Kelly fraction of 50 means half Kelly.
Smaller Kelly fractions are usually safer when your probability estimate is uncertain.
Table of Contents
What Kelly sizing actually does
Kelly sizing tries to maximize long-run bankroll growth when you have an edge. In a prediction market, that edge comes from the difference between the market-implied probability and your estimate of the event actually occurring.
The formula can produce sizes that feel aggressive because it assumes your probability estimate is correct. Real traders usually soften the result with fractional Kelly or hard position caps, because estimation error is unavoidable.
- Full Kelly is the theoretical maximum-growth fraction.
- Fractional Kelly reduces the damage from bad estimates and variance.
- A hard cap protects the book from one oversized idea.
How to use Kelly safely in prediction markets
Start with your best fair probability estimate and current contract price, then decide what fraction of full Kelly you trust. If your edge estimate is model-driven but still noisy, half-Kelly or quarter-Kelly is often more defensible than full Kelly.
The hard cap matters because prediction markets can have correlated positions. Even if the math says 12%, your broader book may already be exposed to the same catalyst or same event cluster.
- 1Confirm the trade is positive EV first.
- 2Choose a confidence fraction based on estimate quality.
- 3Set a hard cap that matches your overall risk policy.
- 4Check whether existing positions already create hidden overlap.
Worked Kelly example
Imagine a contract trades at $0.41, you estimate the win probability at 55%, your strategy bankroll is $5,000, and you prefer half-Kelly with an 8% cap. The calculator first computes the theoretical full Kelly fraction and then applies your softer risk settings.
The output is useful because it translates abstract edge into a concrete stake and contract count. Instead of deciding size emotionally, you can compare the recommendation with your cap and with the rest of your open exposure.
- A good edge can still result in a small stake if the bankroll is small.
- A large theoretical Kelly number does not mean you should ignore concentration risk.
- Recommended contracts help convert the fraction into executable size.
The Kelly mistakes that hurt traders most
The most dangerous Kelly mistake is feeding it an inflated probability estimate. If the edge is wrong, the size will be wrong too, and Kelly magnifies that error instead of protecting you from it.
Another mistake is using total net worth as bankroll. Kelly is meant for capital allocated to the strategy, not every dollar you own. Mixing those numbers leads to misleading outputs and poor real-world risk control.
- 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
When in doubt, reduce the confidence fraction. Smaller size keeps you alive long enough to discover whether your edge estimate is genuinely repeatable.
Sources
These references support the assumptions and workflow guidance on this page. Always verify current platform rules before relying on a calculator preset.
Internal guide connecting edge identification to disciplined trade selection.
Internal primer on the binary market payout structure that Kelly sizing depends on.
Frequently Asked Questions
Short, practical answers to the questions readers usually ask after learning how prediction markets price, trade, and settle.