Binary Kelly Calculator — Optimal Position Sizing for Prediction Markets
Calculate mathematically optimal stake sizing for binary prediction contracts. Mitigate variance and risk of ruin using Full, Half, and Quarter Kelly allocations.
MARKET PRICE & MODEL ESTIMATION
Kelly Allocation Matrix Across Risk Profiles
| Risk Profile | Capital Fraction | Position Stake ($) | Max 95% Drawdown Risk |
|---|---|---|---|
| Full Kelly (1.0x) | 9.09% | $909.09 | 33.3% High Volatility |
| Half Kelly (0.5x) | 4.55% | $454.55 | 11.1% Moderate Volatility |
| Quarter Kelly (0.25x) ★ | 2.27% | $227.27 | < 1.5% Institutional Standard |
| Eighth Kelly (0.125x) | 1.14% | $113.64 | < 0.1% Ultra Conservative |
Frequently Answered Questions
Why is the Kelly Criterion essential for prediction markets?
The Kelly Criterion maximizes the long-term compound growth rate of capital while preventing catastrophic bankruptcy. It ensures stake sizes are strictly proportional to your mathematical edge over the market consensus price.
Why do institutional quantitative traders use Fractional Kelly (Quarter-Kelly)?
Full-Kelly betting assumes zero estimation error in your true probability model. Because real-world models have estimation noise, Full-Kelly leads to excessive drawdown volatility (13.5% ruin risk). Quarter-Kelly retains over 60% of the growth rate while slashing variance by 75%.
What does the calculator do when the market edge is negative?
When your estimated probability is lower than or equal to the market implied price, the Kelly fraction mathematically equals zero or negative, signaling a mandatory NO-BET condition to preserve capital.