# Kelly Criterion Formula Explained: How to Optimize Your Wagers in Sports Betting

Also known as the Kelly Bet, the Kelly Criterion formula is a bet-sizing strategy often used in sports betting but also employed in investment management. It is said to have been used by many successful investors, including Warren Buffet. In this guide, we’ll show you how to calculate the Kelly Criterion, use it in sports betting strategies and more.

## What is the Kelly Criterion?

Kelly Criterion is a mathematical formula created in the 1950s by John L. Kelly. The idea was to create a formula that would assist with long-term wealth management, but it was soon picked up by sports bettors and used in horse racing and other sports.

## How to Calculate Kelly Criterion

There are a few critical aspects of a Kelly Criterion formula:

- F = The percentage of your bankroll that you should wager
- P = The probability of a win
- Q = The probability of a loss
- B = The percentage of F gained during any winning bet.

So, if there is a 60% chance of winning on a bet that pays 1:1, then p = 0.6 and q = 0.4. The Kelly Criterion formula then recommends betting 20% of your bankroll. In this way, you are always betting with a perceived positive edge. If there is no edge, in which case b becomes equal to p and q, you should not bet.

If the edge is negative, you should take the other option in the bet, as the other side of the wager likely offers more value.

To better understand this, we can take a look at the game of American Roulette. If the gambler is trying to use the Kelly Criterion formula to decide whether or not to bet on black, they will find that the best option is not to wager anything. That’s because there are 18 black numbers on the board and 20 non-black numbers, yet the payout is even (1:1).

In other circumstances, the best option would be to take the opposing side of the bet (the non-black numbers), but as there is no such option in roulette (you can bet on red, but the two green numbers mean the odds will be the same) there is no recommended wager.

You can also apply the Kelly Criterion to other online casino games, whether calculating the best hands in blackjack or using it to calculate the best option in video poker or baccarat games.

## Isn’t it Just Common Sense?

Essentially, the Kelly Criterion instructs you to bet on outcomes when the probability is high compared to the payout. So, if you’re being promised a 1:1 return, you need a probability that is greater than 1:1. That way, you can expect to win more than 50% of the time, and when those wins are calculated for a session, you should be in profit.

It sounds simple and obvious, but when it comes to gambling, it’s something that many people overlook.

For example, let’s look at a study conducted in 2016 titled “Rational Decision-Making under Uncertainty: Observed Betting Patterns on a Biased Coin”. Researchers gave participants $25 and instructed them to spend half an hour placing bets on a coin flip. They were told that the coin would land on heads 60% of the time, a position that every experienced gambler would love to find themselves in.

Achieving a winning total from a game like this is just about structuring your bet amounts to ensure you’re not risking it all on a single match and letting probability guide you to profit.

That should have happened with the study’s participants, but nearly a third of them lost all their money within the allotted time. The study concluded that the average person needs better training to understand probability and bet structuring.

It’s not just about choosing the right option, though. The Kelly Criterion also helps you calculate how much of your bankroll should be wagered on each bet.

## How to Calculate Your Bankroll

A bankroll is an essential aspect of calculating the Kelly Criterion. So, what exactly is it, and how do you create one?

A bankroll is just a gambling budget. It is the amount that you set aside for gambling. The total will reflect how much time you spend gambling and your current financial situation.

Your bankroll should never:

- Be taken from the money you use to pay bills
- Be removed from a savings or investment account
- Be increased daily, weekly, or after/during a gambling session

It is an amount that you can afford to lose.

So, for example, let’s assume that your total net income every month is $10,000.

You need $3,000 to pay the bills, $1,000 to cover ongoing debts and obligations, $1,000 to pay for living expenses, and $2,000 for your savings.

That leaves $3,000. But you also need to consider other extraneous costs, such as travel, transport, emergency repairs, vacations, and all those other life expenses that arise occasionally.

After calculating all this, you may determine that $1,500 would be safe. You can then move that $1,500 to a separate account or place it in an e-wallet or cryptocurrency fund.

Don’t increase the amount at any point during the month. If you lose it all within the first week, it indicates that your bet stake is too high and needs to be adjusted. Even so, you should wait until the next bankroll period before you add another $1,500 to the account (assuming your circumstances haven’t changed).

If you win money during that period, you can withdraw it and keep it as profit or use it to bolster your bankroll. Initially, we recommend taking that money out, keeping it as profit, and continuing as you were before. Unless you’re a serious gambler, such as a professional poker player, blackjack player, or sports bettor, you don’t need to use the money you win to increase your exposure.

## Summary: Kelly Criterion in Sports Betting

The Kelly Criterion is an excellent tool for understanding high-probability betting, and if you’re serious about your gambling, you should learn how to use the Kelly Criterion in betting. Hopefully, this guide has helped you to do just that! Check out our online roulette tricks to win for more top tips and strategies.

## More Games Common Queries

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How is Kelly's Criterion calculated?

It is calculated by comparing a win/loss probability with the potential payout and then calculating the ideal bankroll percentage to wager.

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What is the simple Kelly formula?

A simple formula is f = p – q/b = p – 1-p/b

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