The Kelly criterion gives the share of the account that maximizes long-run growth if your numbers are exact. They never are, so read the half and quarter results first.
Kelly fraction = win rate − (1 − win rate) ÷ (average win ÷ average loss)
With a 45% win rate and a 2:1 payoff the formula gives 17.5%. Full Kelly is the mathematical growth-maximizing bet if win rate and payoff are exactly right. In practice they are estimates from a limited number of trades, usually too optimistic, and betting full Kelly on an overestimated edge is worse than betting less on a real one.
Even with exact inputs, full Kelly produces drawdowns of half the account or more. Many traders cap risk at half or quarter Kelly, and well below that in practice. Use the risk of ruin calculator to see how the same inputs behave over a run of trades.
Questions people ask
What is the Kelly criterion in trading?
A formula for the bet size that maximizes long-run growth, given your win rate and the size of your average win and loss.
Should I use full Kelly?
Rarely. It assumes exact inputs and tolerates very large drawdowns. Half or quarter Kelly gives up some growth for much smaller swings.
What if the result is negative?
It means your numbers have no edge: the formula says to bet nothing. Check whether the win rate and average win are real before changing the size.