Kelly fraction (binary simplified): Treating a Kelly Fraction as a Mathematical Model
The simplified Kelly fraction uses a binary win probability and net payoff odds to estimate a growth-optimal fraction under idealized assumptions.
Use the Kelly fraction (binary simplified) Calculator to enter your own figures and compare the result with the worked example below.
Kelly fraction (binary simplified) formula
f* = (b×p − q) ÷ b
Worked example
| Item | Example value |
|---|---|
| Net payoff odds | 2 odds |
| Win probability | 50 % |
| Kelly fraction (binary simplified) | 25% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Small probability errors can make the fraction unreliable. It is not a recommended trading allocation, and real losses need not follow a two-outcome model.
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Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Leveraged investing risks. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.