No matter how good of a poker player you are, you cannot be successful without learning and abiding by good bankroll management techniques. There are several different points of view on this topic, but I’m just going to discuss the method that has worked for me. I’ll briefly explain the theory behind optimal bankroll management and simplify it to make it useful to a poker player.

In order for any bankroll management system to be successful, you must be playing a game with a positive expectation. No amount of money management can turn a negative expectation game (such as roulette) into a winning proposition. So, for long term bankroll management to be effective, you must be a winning player at your game of choice. This might sound obvious but it’s critical that you understand it.

Am I a Winner Yet?

This can be a difficult question to answer. It will take a huge number of hands before you can be absolutely certain that you are a long term winner. In fact, you will never learn your actual win rate in a game because there are so many variables. Even if you continue to play exactly the same over 5 millions hands, your opponents will change, and your ability to adjust to these changes will affect your win rate. Since it takes so long to determine what your actual win rate is, you may be losing over 20,000 or substantially more hands and still actually be a winner in the long term. Short term variance can be a nasty thing…

Blah blah blah. Am I a winner yet or not? I’ve included a spreadsheet in the Starter Pack that will calculate your actual win rate (as a high and low range) and give you the probability that you are a long term winner.

The Kelly System

In the book, The Mathematics of Gambling, by Edward O. Thorpe, the “Kelly System” is introduced. This system states that a player should wager a fixed percentage of their entire bankroll at a time. The percentage is calculated based on the probability of winning any given wager.

Example: If the probability of winning a particular wager is .52, the optimal bet percentage can be found by using the following formula. Let p equal the probability of winning.

p – (1 – p) = bet
.52 – (1 – .52) = bet
.52 – .48 = .04
.04 = 4%

So, in the above example the player should wager 4% of his bankroll on every wager. When he loses a wager, his bankroll will shrink. Therefore, when his bankroll is smaller, the 4% bet will also be smaller, and of course the opposite is true after winning a wager. By the formula, the larger the probability of winning, the larger the percentage of the bankroll that should be wagered. This system allows for big swings in “luck” to occur while keeping a bankroll safely intact.

Bankroll Management Simplified

The Kelly System is not possible for you as a beginning poker player because there is no way of knowing what your probability of winning is. What we can do is decide on a number to use as your maximum wager (buy in) as a percentage of your total bankroll. If your bankroll can be easily replaced you can use more aggressive bankroll management. If you are using a bankroll that cannot be replaced you must be extremely conservative in the percentage that you use as your buy in amount.

If you want to start off conservative, I recommend buying in for between 2% and 4% of your entire bankroll, depending on your comfort level with the game. This means that with a $50 roll you should only buy in for a maximum of $2 at a time (4%). If you want to play conservative you would require at least a $250 bankroll to start playing with a $10 buy in.

Example: You have a $160 bankroll and want to use aggressive bankroll management. You decide you are comfortable wagering 5% of your roll at a time. Let B equal bankroll and P be the percentage you are willing to wager.

B * P = Buy in
$160 * 5% =
$160 * .05 = $8

In the above example you can buy in for $8 at a time. So let’s assume you buy in for $8 at a .05/.10 game. In the first 5 minutes you double up and now have $16. Now you are risking almost 10% of your bankroll, so you must sit out and find a new table. Of course there is more to it than this. Namely, the effective stack size. If your opponent in this example only has $8 on the table, you are really only risking $8. However, if your opponent wins a big pot and you both now have $12 in your stacks, you’re now risking $12 or 7.5% of your bankroll on this one game.

When playing with aggressive bankroll management you cannot afford to play deep. If you start playing deep you are risking way too much of your bankroll on this one outcome and you must get up and leave. For this reason I like using a more conservative bankroll management formula that can be adjusted to an aggressive strategy if conditions warrant it. By doing this you are not forced to leave profitable situations because you are playing too deep.

Bankroll Management REALLY Simplified

1. Always play with a bankroll of between 30 and 50 times the buy in at the stake you want to play (60 to 100 buy ins if you are thinking about turning pro). The higher your win rate, comfort level, and willingness to move down in stakes the lower your bankroll requirement should be.
2. If you lose some buy ins and no longer meet the minimum, it’s time to move down in stakes until you recover.
3. Set bankroll management rules that you are comfortable with and don’t break them!

Bottom Line

Bankroll management is one of the most important skills you can learn as a poker player. If you can’t effectively manage your bankroll you will limit your income potential and expose yourself to unnecessary risk. Learning bankroll management is only half the battle – you have to be able to implement it and stick to it for it to do you any good.