BRVX Glossary · Kelly criterion · Updated September 25, 2026
The Kelly criterion is a formula that sets the fraction of capital to risk on a bet to maximise long-run growth, based on the win rate and the win-to-loss payoff. With a 55% win rate and equal wins and losses, Kelly says to risk 10% of capital per bet.
The formula
Kelly % W − (1 − W) ÷ R
W is the win rate and R the average win divided by the average loss.
How it works
- Win rate W
- Payoff R = win ÷ loss
- Stake Kelly %
On this page
Worked examples
- W = 55%, R = 1: 0.55 − 0.45 ÷ 1 = 10% of capital.
- W = 40%, R = 2: 0.40 − 0.60 ÷ 2 = 10%.
- W = 40%, R = 1: 0.40 − 0.60 = −20% — a negative Kelly means no edge: do not bet.
- W = 60%, R = 1.5: 0.60 − 0.40 ÷ 1.5 ≈ 33%.
Why traders use half Kelly or less
Full Kelly assumes you know your true win rate and payoff. In trading both are estimates from a limited sample, and overestimating them makes Kelly oversize. Full Kelly also produces deep drawdowns — halving the stake cuts volatility by half while keeping about three-quarters of the growth rate.
Origin
John L. Kelly Jr. published the formula at Bell Labs in 1956 as a result in information theory. Edward Thorp later applied it to blackjack and then to investing.
On BRVX
On BRVX the Kelly fraction is the share of the account you accept losing if the stop is hit — not the margin and not the leverage. A 10% Kelly risk with a stop 2% away means a position worth five times the risked amount; with leverage up to 150x on BTC/USDT, the margin needed can be small while the risk is not.
Questions about Kelly criterion
What is the Kelly criterion used for?
Choosing how much of your capital to risk on each bet or trade to grow it fastest over time.
Is full Kelly too aggressive?
Usually, yes. Most practitioners use a quarter to a half of the Kelly fraction.
What does a negative Kelly mean?
The bet has no edge at those odds; the formula says to risk nothing.
Kelly criterion: next steps on BRVX
Kelly criterion on WLD/USDT: 0.14% a round trip in fees, 0.0103% per hour funding on a long, about 2.47 USDT a day per 1,000 USDT.
Read next: Risk-reward ratio, Drawdown and Sharpe ratio.
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