Fixed Fractional simply risks a constant % of equity per trade (e.g., 1%). Simple and robust, but it leaves money on the table when edge is high.

Kelly Criterion derives the mathematically optimal fraction to risk:

f* = (bp q) / b

• Where:
• b = net odds received per $1 wagered (e.g., R:R of 2 b = 2)
• p = win probability
• q = loss probability (1 p)

Example: Win rate = 55%, R:R = 1.5 (b = 1.5) f* = (1.5 × 0.55 0.45) / 1.5 = (0.825 0.45) / 1.5 = 0.375 / 1.5 = 25%

Kelly says risk 25% — but in practice, traders use Half-Kelly (12.5%) to account for estimation error and reduce volatility.