How to size like a desk
A trading edge only matters over many trades, and the bet size you choose decides whether that edge compounds or ruins you. Start with your real numbers: how often you win, your average reward-to-risk, and the percentage of capital you put at risk per trade. Expectancy tells you the average outcome of a single trade; if it is negative, no position size can save the account. The Kelly fraction gives the mathematically optimal risk for maximum growth — but real desks rarely use it in full. Because edges drift and drawdowns compound, professionals size at a fraction of Kelly, often half, and keep per-trade risk small enough that a normal losing streak never threatens the account. Run the simulation, watch the equity fan, and choose risk by the drawdown you can survive — not the upside you imagine.
FAQ
What is risk of ruin?
Risk of ruin is the probability that your account falls to a chosen failure level — here a 50% drawdown — at some point over a series of trades. Even a positive edge can hit ruin if you risk too much per trade, because losing streaks are inevitable. We estimate it by Monte-Carlo: running thousands of simulated sequences from your win rate and reward-to-risk and counting how often equity crosses that line.
What is the Kelly criterion?
The Kelly criterion is a formula for the bet size that maximizes the long-run growth rate of your capital. For a trade with win probability p and reward-to-risk R, the Kelly fraction is (p·R − (1−p)) / R, which is the share of capital to risk per trade. A negative result means there is no edge to bet on.
Why is full Kelly risky?
Full Kelly maximizes growth but produces large drawdowns, so most traders use a fraction like half-Kelly. It assumes your win rate and reward-to-risk are known exactly; real edges drift, and at full Kelly a normal losing streak can cut the account in half. Sizing at half-Kelly keeps most of the growth with far smaller swings.