Polymarket
Polymarket can be used to make money and to hedge against possible risks.
Trading / betting
Depositing
The default deposit method costs ~13 basis points or 0.13%. You can avoid this fee by:
- Deposit with card: For beginners, this offers the smoothest experience. You don't even need a crypto wallet to do it.
- Getting USDC on the Polygon PoS chain yourself and using the "deposit crypto" option. ~10 basis points plus possible bridge fee
- Getting USDC on the Polygon PoS chain yourself and swapping for USDC.E yourself. ~5 basis points plus possible swap and/or bridge fee
- For advanced users: The default deposit dialog is an accouintless centralized exchange that enforces OFAC sanctions. Any method to send USDC.E to a Polygon PoS wallet will work. Note that different L2s have different "USDC.E" tokens, and it needs to be USDC.E wrapped by the official Polygon bridge- not USDC issued natively by Circle.
Always test with small amounts when trying a new method first.
Hedging / insuring
Polymarket tends to have a bias towards things happening, so it tends to offer poor (but still sometimes useful) prices for insurance.[1] However, it can offer a potentially useful venue to create convex portfolios.
Trading strategies
- For large orders in markets with decent volume, place limit orders at or near the current price and wait for fills to trickle in if you don't expect the price to move quickly on its own
- have ways of knowing orthogonal to the market and bet when multiple of those point in the same direction
- nothing ever happens
- thoroughly research things, don't bet on impulse, multiple rounds of analysis are good
- place limit orders to get good prices
- oracle risk (misresolution risk)
- avoid sports, crypto, mentions, earnings, and stocks. these markets are either random or too efficient due to people poring over spreadsheets already
- read and understand the market rules in detail
- if you think a probability is approximately correct, place yes and no orders on both sides and then merge them together into USDC later
- For beginners, making money is more about avoiding dumb bets and bet sizing than betting smart.
- If you're worried an opportunity will disappear before you have a chance to bet on it, increase your bet size as you gain confidence by researching the opportunity, instead of betting all at once
- If you have a smaller amount of money to bet (a smaller bankroll), bet on lower liquidity markets that aren't worthwhile for larger traders
Fractional Kelly betting
The Kelly criterion or formula describes the theoretical optimal maximum size to bet as a portion of the participant's bankroll, assuming the bettor has perfect knowledge and zero risk aversion. Fractional Kelly (often referred to as just "Kelly betting") is a strategy that some real-world market participants use for bet sizing, which multiplies the Kelly criterion by a percent. For example, "25% Kelly" means to bet a quarter of what the Kelly criterion would suggest. Colloquially, this fraction is known as the Kelly factor, and is used to describe the maximum or present bet amount relative to the bankroll.
On its own, the Kelly criterion only takes into account the market probability and your probability. Fractional Kelly takes into account your confidence level. Neither take into account market spreads nor other possible competing uses of your time and money.
- Beginner traders should cap their bets at 25% Kelly
- This smooths out losses and cushions their emotional impact
- Skilled traders should cap their bets at 50% Kelly
- Traders should be prepared by having the emotional fortitude to handle losing money. Otherwise, the first time you get burned, you'll reduce your Kelly factor
- Roughly, for each $1 of upside risk you get beyond 50% Kelly, you get $3 of downside risk
The Kelly Bet Calculator v1.2 ampdot made combines most of this information into an interactive tool.
You can (and should!) read more about Kelly betting and the Kelly formula:
Pitfalls
- Kalshi has a track record of misresolving markets or silently changing rules
- Many prediction markets (e.g. Coinbase Predict) are actually frontends to Kalshi
- Some markets are largely noise unless you have a detailed model of what's going on, including, in descending order of randomness: Earnings, sports, crypto, app store rankings, and mentions. Avoid betting on them unless you know what you're doing!
- Avoid markets with ambiguity or misresolution risk. Markets linked to an organization taking action in response to the event may resolve based on when the organization announces it, not when the event happens.
- Ask yourself if there is potential for semantic ambiguity before trading on an event contract and avoid betting if so
- The user aenews is known to win markets by manipulating the oracle into misresolving markets. Check if they're betting on a market and be aware of elevated risk if they are