Kelly Criterion Calculator for prop firms
The Kelly criterion sizes risk to maximise long-term growth. Because a challenge ends at the maximum drawdown, this applies Kelly to that buffer as a sensible ceiling on risk. It is not the risk that maximises your odds of passing — for that, use the simulator.
In short
- What is the Kelly criterion?
- A formula that gives the mathematically optimal fraction of your bankroll to risk on a bet with a known edge, to maximise long-term growth. For trading it uses your win rate and your reward-to-risk.
- Why size against the drawdown, not the account?
- On a prop firm challenge you fail the moment you lose the maximum drawdown, so that buffer, not the whole account, is the money you can actually risk. This calculator applies Kelly to the drawdown buffer.
Your edge & account
Average win ÷ average loss (2 = 2:1).
Enter your numbers, then run the calculator.
Kelly sizing
Your numbers
Why the drawdown, not the balance
Standard Kelly sizes your bet against your bankroll, the money you can afford to lose. In a normal account that is close to the whole balance. In a prop firm challenge it is not: the moment you lose the maximum drawdown the account is gone, even though most of the balance was never really yours to risk. So this calculator applies Kelly to the drawdown buffer, which gives a sensible ceiling on your risk rather than a number tuned to any one challenge.
The maths becomes: Kelly fraction = win rate − (1 − win rate) ÷ reward-to-risk, and risk per trade = Kelly fraction × max drawdown. If the Kelly fraction is zero or negative, your edge does not justify any risk.
Why half Kelly is the standard
Almost nobody trades full Kelly. It technically maximises long-run growth, but with punishing swings and expected drawdowns of fifty percent or more, and it assumes you know your win rate and payoff exactly. Because the growth curve is flat near its peak, half Kelly keeps around three quarters of the growth while roughly halving the volatility and the drawdowns. Against a tight prop firm drawdown, sizing down is not caution, it is survival.
Find the risk that actually passes
This is the key limitation: Kelly maximises long-run growth, which is a different goal from passing a fixed challenge before hitting the drawdown, so it is a risk ceiling, not the pass-maximising risk. Plug your win rate, reward-to-risk and this risk level into the free simulator to see the pass rate it actually produces.
Open the Monte Carlo simulator →Method, assumptions and limits
This calculator estimates a growth-optimal ceiling for how much to risk per trade. It uses half Kelly and sizes it against your drawdown buffer rather than the whole account.
The maths. The Kelly fraction is f = win rate − (1 − win rate) ÷ reward-to-risk. If that is zero or negative, your edge does not justify any risk. The tool then takes half of it and applies it to your maximum drawdown, the money you can actually lose before failing, not the nominal balance: risk per trade ≈ half Kelly × max drawdown. Sizing Kelly against the drawdown buffer rather than the whole account is PropWorld's own adaptation for prop-firm constraints, not a standard result of Kelly theory.
Worked example. A 50% win rate at 2R gives f = 0.50 − 0.50 ÷ 2 = 0.25 (full Kelly). Half Kelly is 0.125, so against a $10,000 drawdown buffer that is about $1,250 of risk per trade.
What it assumes, and does not do. It assumes your win rate and reward-to-risk are known and stable and that trades are independent; in reality edges drift and estimates are noisy, which is another reason to prefer half Kelly. Most importantly, Kelly maximises long-run growth, which is a different goal from passing a fixed challenge before hitting the drawdown. Treat this as a sensible risk ceiling, and use the pass rate simulator for the rest.
Kelly criterion: frequently asked questions
What is the Kelly criterion?
A formula that gives the mathematically optimal fraction of your bankroll to risk on a bet with a known edge, to maximise long-term growth. For trading it uses your win rate and your reward-to-risk.
Why size against the drawdown, not the account?
On a prop firm challenge you fail the moment you lose the maximum drawdown, so that buffer, not the whole account, is the money you can actually risk. This calculator applies Kelly to the drawdown buffer.
Should I use full or half Kelly?
Half Kelly. It keeps most of the growth of full Kelly while roughly halving the swings and is a common, more conservative choice. Full Kelly is far too aggressive against a tight drawdown.
Is Kelly the best risk for passing a prop firm challenge?
Not exactly. Kelly maximises long-term growth, which is a different objective from passing a fixed challenge before hitting the drawdown. Use half Kelly as a risk ceiling, and use a Monte Carlo simulator to find the risk that maximises your odds of passing.
Educational tool only, not financial advice. The output is a simplified statistical model of the figures you enter, not a prediction. Trading leveraged products carries substantial risk of loss.