What the Kelly formula actually says
Kelly answers one precise question: what bet size grows my capital fastest over many repeated trades? For a payoff of b to 1, a win probability p and loss probability q = 1 − p, full Kelly is f = (b·p − q) ÷ b. The magic is that this fraction maximises the logarithmic growth rate — bet more and you grow slower and risk ruin; bet less and you leave compounding on the table. It is the optimum, not a suggestion. But it is an optimum for a known edge, and that's the catch.
Why almost nobody trades full Kelly
Full Kelly is brutally volatile — it routinely produces 50%+ drawdowns even on a real edge, because it sizes for maximum growth and ignores how it feels to lose half your account. Worse, it assumes your win rate and payoff are exact. In live trading they're estimates, and over-estimating your edge makes full Kelly over-bet, which is how mathematically "optimal" sizing blows accounts. Half Kelly keeps roughly three-quarters of the growth rate for about half the volatility and is forgiving of bad inputs; quarter Kelly is the conservative default for discretionary crypto edges. Pair this with the risk of ruin calculator to see what your chosen fraction does to survival odds, and the losing streak simulator for the drawdown it digs.
Negative Kelly is the best result you can get
If the formula returns a negative number, the strategy has negative expected value — its edge doesn't exist. The optimal stake is zero: don't trade it at any size. This is Kelly's most underrated feature. No position-sizing trick rescues a losing edge; you have to fix the win rate or the reward:risk first. Confirm the edge itself with the expectancy calculator before you size anything.
How to use it
1. Enter your honest, fee-adjusted win rate over a real sample.
2. Enter your reward:risk — a 2:1 winner versus loser is 2.
3. Enter your bankroll and pick a Kelly fraction (start at half or quarter).
4. Use the resulting % as your risk per trade, then translate it to a position with the position size calculator.
FAQ
Is the Kelly % the same as position size? No — it's the fraction of your bankroll to risk (i.e. lose if your stop is hit), not the notional position. A 2% Kelly risk on a trade with a 1% stop distance means a position of roughly 2× your account using leverage. Convert it with the position size calculator.
What reward:risk should I enter? Your average winner divided by your average loser, in R terms — the same ratio the risk/reward calculator uses. Use realised averages, not your target.
Does Kelly work for crypto leverage trading? The math is sound, but crypto violates Kelly's assumptions — fat tails, gaps through your stop, and unstable win rates all argue for fractional Kelly (quarter or less) plus a hard cap on risk per trade.