Kelly criterion for event contract sizing
The Kelly criterion is a formula for sizing bets that maximizes the long-run growth rate of your bankroll. Applied to binary event contracts, it tells you exactly what fraction of your capital to deploy on a given trade given your estimate of the true probability and the price offered by the market.
Kelly criterion for event contract sizing
The formula
For a binary outcome (win or lose), the Kelly fraction is: f* = (b * p - q) / b, where b is the net odds on a winning bet (if you stake $1 and win, you receive $b plus your stake back), p is your estimate of the true probability of winning, and q = 1 - p is the probability of losing. In prediction market terms, if a YES share is priced at $0.40 and you think the true probability is 55%, then b = (1 - 0.40) / 0.40 = 1.5, and f* = (1.5 * 0.55 - 0.45) / 1.5 = 0.25. You should stake 25% of your bankroll on this trade.
Estimating true probability vs market price
The Kelly formula is only as good as your probability estimate. If the market price already reflects all available information, your edge is zero and Kelly tells you to bet nothing. Your estimate must be genuinely independent of the market price to generate a positive Kelly fraction. Good sources include base rates from historical data, proprietary models, or information the market has not yet absorbed. Overconfidence in your own estimate is the most common Kelly mistake: traders systematically overstate their edge, leading to position sizes that are far too large.
Fractional Kelly in practice
Full Kelly maximizes long-run growth but produces dramatic short-run volatility. A single bad bet at full Kelly can cost you a quarter of your bankroll. Most professional gamblers and traders use fractional Kelly, typically 25% to 50% of the full Kelly fraction. Half-Kelly roughly halves both the variance and the long-run growth rate relative to full Kelly. For most prediction market traders, 25% Kelly is a reasonable starting point: it keeps individual losses manageable while still compounding capital meaningfully over many trades.
How fees change the math
Platform fees reduce your effective edge and therefore reduce the Kelly fraction. On Polymarket, a 2% fee on winnings means your net payout on a winning YES share is $0.98 rather than $1.00. On Kalshi, fees can reach 5% on some markets. To account for fees, reduce the net odds b by the fee percentage before calculating f*. If you calculated a Kelly fraction of 20% before fees and the fee is 5% of winnings, the post-fee Kelly fraction will be noticeably smaller. Always calculate Kelly on your after-fee expected value, not the gross payout.
이 시리즈의 관련 가이드
예측 시장에서 내재 확률이란 무엇인가?
0.62달러에 거래되는 YES 주식이 시장 내재 확률 약 62%를 의미하는 이유, 그리고 이 해석이 무너지는 경우.
시리즈예측 시장의 오더북 vs AMM
Kalshi와 Polymarket은 오더북을 사용하고, 초기 온체인 플랫폼은 자동화 마켓메이커(AMM)를 사용한다. 각 방식이 위험을 다르게 가격에 반영하는 방법.
시리즈LMSR(로그 시장 채점 규칙)이란 무엇인가?
Robin Hanson이 예측 시장을 위해 설계한 마켓메이커 공식, 손실을 제한하는 이유, 그리고 여전히 사용하는 곳.