Measure
Kelly criterion
Definition
The position size that maximises the long-run growth rate of capital.
Formula
f* ≈ (expected excess return) / (variance)
How to read it
It gives a mathematically optimal bet size for a known edge, and practitioners typically use a fraction of it.
What it does not tell you
It requires the edge to be known. Estimated from data, the edge carries error, and overestimating it makes full Kelly ruinous — which is why fractional Kelly exists and why the full figure is rarely the right size.
Applied in 3 articles
3Every figure computed with this measure on this site follows the conventions set out in the methodology. All measures →