Betting Strategy

What is the Kelly Criterion?

Mathematical formulas by themselves won’t predict results for your bets. Nothing can. However for managing risk and evaluating opportunity, there’s nothing better. Gut feeling alone will never lead to consistently positive results.

The Kelly Criterion was developed in 1956 by J.L. Kelly, a scientific researcher at AT&T. Once gamblers caught wind of it, its application for backing horses meant an explosion in its popularity. But what sets it apart from other methods of betting like Fibonacci systems or Poisson betting? It’s all about the edge. You need to understand how to figure out the probability of an outcome, if you’re not sure, read our guide on betting odds to see how they work.

Instead of using a previous bet or hedging to decide on your stake, the Kelly criterion uses your edge over the odds to calculate the size of your stake. Applied correctly, there’s no limit to how much your funds should increase. But it won’t happen quickly. Let’s see how it works.

The Kelly Criterion formula is: 

(BP - Q) / B = S 

  • B = the Decimal odds of the wager-1 
  • P = the probability of success 
  • Q = the probability of failure (i.e. 1-p) 
  • S = The amount of your bankroll to stake 

To see how it works in practice, use this calculator to work out how much you should stake on an outcome. Take the provided odds and calculate the probability of the event happening. The calculator will return the percentage of your total bankroll to stake.


Decimal Odds


Probability of Success


Percentage of own stake 0

A negative percentage implies that you should not wager on this outcome.


When to use it

Anything that relies on probability fits into the Kelly Criterion model. Any calculation that results in a positive number implies there is value in taking the bet. The Kelly Criterion manages risk far more effectively than other methods. However you need to calculate the probability of success exactly in order to make use of it.

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Cloudbet

Cloudbet

Cloudbet

Posted on 2018-06-25

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