Kelly fraction

The bet size that maximizes the long-run growth rate of capital given an edge and its payoff distribution. In practice it is a ceiling, not a target: full Kelly assumes exact knowledge of the edge, produces severe drawdowns, and turns growth negative if the edge is overestimated, so practitioners trade at half-Kelly or less.

First used in Lesson 2.6 · Position sizing and risk: how much, and how not to blow up — the lesson that makes this term real.