The Kelly criterion is a formula for the share of your account to risk on each trade so that it grows as fast as possible over time. Enter your win rate and your average win compared with your average loss, and this calculator gives the full, half and quarter Kelly risk.
Kelly Criterion Calculator
The theoretically optimal risk per trade for your win rate and payoff.
Results are estimates for information only, not financial advice. Trading on leverage carries a high risk of losing money.
What Is The Kelly Criterion?
The Kelly criterion was developed in 1956 by John L. Kelly at Bell Labs and later used by professional gamblers and investors. It answers one question: given your edge, what fraction of your capital should you risk on each bet to grow it fastest in the long run?
Risk less than Kelly and your account grows more slowly. Risk more and it grows more slowly too, with much deeper drawdowns – and at about twice the Kelly amount, the expected growth turns to zero and beyond that it goes negative.
How To Use The Calculator
- Enter your win rate from your trading journal.
- Enter your average win divided by your average loss. If you win $150 on average and lose $100, enter 1.5.
- Add your account balance (optional) to see the half Kelly risk as an amount.
The calculator shows the full Kelly percentage, half and quarter Kelly, the half Kelly amount on your balance, and your edge per trade in R. If the strategy has no edge, Kelly is zero: the formula says not to trade it.
The Formula
Kelly % = W − (1 − W) ÷ R, where W is the win rate and R is the average win ÷ average loss.
Example: a 55% win rate with R = 1.5 gives 0.55 − 0.45 ÷ 1.5 = 0.25, so full Kelly is 25% of the account at risk per trade.
Why It Matters To Traders
Kelly puts a ceiling on position sizing. If your plan risks more than the Kelly amount, you are taking extra risk that slows the account’s growth.
In practice, full Kelly is far too aggressive for trading. Your real win rate and payoff are only estimates and change over time, and full Kelly brings drawdowns of 50% or more that few traders could live with. That is why many use half or quarter Kelly as an upper limit, and most still risk only 1–2% per trade.
Tips
- Use results from a large sample of trades, after costs. Small samples make your edge look bigger than it is.
- Treat the Kelly figure as a maximum, not a target.
- Test what a chosen risk per trade means for losing streaks with the drawdown and risk of ruin calculator, and work out your edge with the expectancy calculator.
Related Trading Calculators
Alternatively, see our full suite of free online trading calculators.
DayTrading.com’s free trading calculators are for education and planning only and are not financial advice. Trading with leverage is high risk, and you could lose any money you invest. Trade responsibly.