Kelly criterion for stake sizing

The Kelly criterion is a staking strategy that calculates the optimal stake for maximum growth of your bankroll, based on the perceived value of the bet.

We use the Kelly criterion when recommending the optimal stake when you’re betting on value bets.

Fractional Kelly

You can also choose what Kelly stake sizing you want (also called fractional Kelly). This is a balance between expected profit and money risked. Decreasing the Kelly percentage will make you risk a lot less money, while only decreasing your profits very slightly.

30% Kelly is the default setting in ValueBetting and is a good balance between profit and risk.

You can change this by going to Options / User in ValueBetting software and Options in the ValueBetting web version. But before you do, please make sure you have understood how your Kelly stake sizing affects variance.

Using a Kelly above 50% is not recommended and will lead to very high variance and steeper draw-downs, with very little increase in profits.

Fractional Kelly stake sizing can also be combined with a max bet size.

Kelly and multiple simultaneous bets

The original Kelly criterion is proven to be mathematically optimal when placing a single bet, an infinite number of times. In reality, your goal is to maximize your expected bankroll growth over a finite number of bets, often having many simultaneous bets open.

Automatically adjust bankroll for open bets

When you have many open bets, they must be subtracted from your effective bankroll used when calculating the Kelly stake size for the next bet, to maintain the same risk level.

This is especially important if you often bet a majority of your bankroll each day. If you have 50 open bets and bet the same amount on every bet, you are effectively ignoring the Kelly criterion, resulting in high variance.

On the other hand, if you only bet 10% of your bankroll every day, you will not notice much difference. The feature can be turned off in Options, just disable “Adjust for open bets”.

In ValueBetting (web version), we calculate this adjusted bankroll automatically for you. Just keep the checkbox “Adjust for open bets” enabled in Options (it’s enabled by default). This will slowly decrease the recommended stake as the number of open bets increase, helping you manage your risk while optimizing your profits.

Comparison charts

Here you can see how your bet size and bankroll will change when adjusting for open bets or not. In the example we’re having multiple 5% value bets open simultaneously.

Without adjusting for open bets

Bankroll when not adjusting Kelly stake size for multiple open betsBet size when not adjusting Kelly stake size for multiple open bets

Here you bet the full “single bet Kelly” percentage of 1,4% on every bet. You can place 70 bets before your bankroll is fully turned over. You notice there is no decrease of bet size (and risk) even though your effective bankroll decreases.

 

When adjusting your bankroll for open bets

Bankroll when adjusting Kelly stake size for multiple open betsBet size when adjusting Kelly stake size for multiple open bets

Here the bet size is decreasing together with the bankroll. Note that maintaining a proper Kelly criterion means lower risk, lower variance and smaller drawdowns, but also slightly less average profit. Your bankroll will never run out, since the strict Kelly criterion will never suggest you bet your entire remaining bankroll.