Prediction Market Portfolio Strategies
Finding edge, sizing positions, hedging and arbitrage, with the risks kept in view.
Prediction markets hubTrading prediction markets well is less about predicting and more about pricing. You make money when your estimate of a probability is better than the market’s, and when you size and manage positions with discipline. These are the core strategies, for traders who already understand the basics.
Finding edge
Edge is the gap between your probability and the market price. If you believe an outcome is 60 per cent likely and it trades at 50 cents, you have a 10-point edge. The discipline is to only trade when you can articulate why your number beats the crowd, and to pass when you cannot.
Position sizing
Size to your edge and your bankroll, not your conviction. A fractional Kelly approach scales the bet to the edge while protecting against ruin from a wrong estimate. The same maths underpins our bankroll management guide.
Diversification
Spread risk across uncorrelated markets. Ten independent positions with a small edge each will, over time, beat one large bet on a single outcome, because variance averages out.
Hedging and locking profit
Because you can sell before resolution, you can lock a profit when a price moves your way, or hedge by taking the other side elsewhere. This turns a paper gain into a realised one and caps downside before the event settles.
Cross-platform arbitrage
When the same outcome prices differently on Polymarket and Kalshi, there may be an arbitrage, but only after fees and funding costs. Run the numbers with the fees comparison and the calculator before assuming a gap is free money.
Managing risk
Liquidity and resolution risk can erase a theoretical edge. Trade deep markets, read resolution terms, and keep position sizes proportionate. The full list is on the risks page.
Page FAQ
How do I size positions in prediction markets?
Size to your edge and bankroll, typically with a fractional Kelly approach to avoid ruin from a wrong estimate.
Can I arbitrage Polymarket and Kalshi?
Sometimes, when the same outcome prices differently, but only after fees and funding costs. Check the maths before assuming it is free.
How do I hedge a position?
Sell some or all of your shares at a better price, or take the opposite side on another market, to lock profit or cap loss.
What is edge in prediction markets?
The difference between your probability estimate and the market price. You only have an edge when your number is genuinely better.
Should I use Kelly?
A fractional Kelly stake is a sensible default: it scales to your edge while limiting the risk of ruin from estimation error.
