Calculate the optimal size of each bet based on your edge and odds. Use Kelly fractions to reduce variance and protect your bankroll.
The Kelly Criterion is a mathematical formula developed by John L. Kelly Jr. at Bell Labs in 1956. It determines the optimal fraction of your bankroll to wager on a bet with positive expected value. The formula maximizes the long-term geometric growth rate of your bankroll while accounting for both your edge and the associated risk.
Full Kelly, while theoretically optimal for growth, produces extreme variance in practice. A single losing streak can wipe out a significant portion of your bankroll. That's why most professional bettors use fractional Kelly — typically 1/4 to 1/2 of the full Kelly recommendation. At OdinPicks, we use 1/4 Kelly (Quarter Kelly) to prioritize bankroll preservation over maximum growth.
In addition to fractional Kelly, OdinPicks applies a hard cap of 3% of bankroll per bet. Even if the Kelly formula suggests a larger stake (e.g., in a high-edge scenario), we never risk more than 3% on any single bet. This protects against model uncertainty and ensures you can withstand inevitable losing streaks without significant damage to your bankroll.
Think of Kelly sizing as the intersection of edge and risk management. A larger edge or lower odds (higher probability) means the Kelly formula suggests a larger bet. But if you over-bet relative to your actual edge — which is always an estimate — you risk ruin. Fractional Kelly with a hard cap is the professional approach that balances growth, variance, and long-term sustainability.