Without argument, your bet size is crucial. The question is, how do you determine the correct amount to stake? If you do a quick online search, you’ll realize many techniques exist. However, in this post, we’ll focus on the Kelly Criterion — a strategy many experts confirm is among the best.
The Kelly Criterion depends on probability theory. It helps you size your bets to get more returns, whether you lose or win over time. However, many gamblers skip this formula since it can sometimes be complicated. You’ll now see it’s not.
How Does the Kelly Criterion Work?
As we already mentioned, the Kelly Criterion involves probability. So, you’ll be doing some calculations if you want to use it. You’re good to go with basic math skills since the formula isn’t complex. Check it out below:
f = bp — q/b
From the above expression, the f represents the fraction of your bankroll to bet. In other words, that’s the value you want to get. Meanwhile, b is the net odds. p and q go hand-in-hand, indicating the probability of winning and losing, respectively.
Before you start making any bets, all you have to do is get the values. Then, you plug them into the formula, and you’ll get your f. If you wager according to the result, you can expect to win more than you risk over time.
Using the Kelly Criterion in Practice
To perfectly understand the Kelly Criterion, we’ll give an example. Let’s say you plan to play at RollXO Casino. Here, they double your first deposit, so if you have $500, that leaves you with
- $1,000 bankroll
- 70% chance of winning (30% chance of losing)
- 1.5 to 1 net odds
The above means you have $1,000 to bet with, and your chance of winning is 70%. That consequently means the probability of losing is 30%. Also, your net odds are 1.5:1. That is, you win $1.50 for each $1 you bet.
Check out the Kelly Criterion calculation using the values below:
- f = 1.5 x 0.7 — 0.3/1.5
- f = 1.05 — 0.3/1.5
- f = 0.75/1.5
- f = 0.5
So, you have to wager 50% of your bankroll. We earlier specified that the budget is $1,000, which means you’ll stake $500 on each bet. It’s natural to consider half of your bankroll as high. However, it makes sense, giving the high 70% chance of winning. Those are the core factors the Kelly Criterion takes into consideration. You get to maximize your odds of scoring wins from bets.
Should You Use the Kelly Criterion?
Now, you know precisely how the Kelly Criterion works in getting an ideal bet size. Is it right to use? You’ll have to consider multiple aspects to arrive at a valid answer. The best thing to do is weigh the upsides and downsides to make the right decision. Let’s discuss both.
Advantages
First, we’ll consider the advantages. Like any other technique for sizing bets, The Kelly Criterion ensures maximum long-term profits. You may not witness the additions to your bankroll in short spells. However, if you play for an extended period, you’ll record significant gains. It may be especially relevant to slot games with a small minimum bet size. In many PlayTech’s slots, for example, the minimum bet is just $0.1 (click here to learn more). Games like this are a good fit for this strategy.
Furthermore, using the Kelly Criterion helps you stay disciplined. That’s valid since you know the right amount to stake at any session. You won’t need to increase or reduce your bet following randomly to win or cut losses. Above all, you’ll avoid emotional betting.
Disadvantages
The main issue with The Kelly Criterion is that it requires accurate estimates. You’ll get the wrong result if you don’t use the correct values. Of course, following an incorrect bet size can lead to losses over time.
It’s easy to know your bankroll and net odds. However, determining the accurate chance of winning is challenging — sometimes impossible. If you’re playing casino games like slots, you can use the RTP as a benchmark. But it’s sometimes not dependable as the provider may publish an incorrect percentage. Things are more manageable when playing table games like blackjack and roulette because they have established probabilities.
Bottom Line
So far, you’ll agree that the Kelly Criterion is not difficult to calculate. The formula has only three parameters — b, p, and q. Once you get the final percentage, multiply it by your bankroll to know how much to bet. The only downside is that getting the correct values for the parameters can be tricky. If you can get accurate values for all entries in the Kelly Criterion formula, the technique can help in the long run.