Prediction Market Risk Management

Why Risk Management Matters

Even with an edge, poor risk management can lead to ruin. Prediction markets are inherently uncertain - you can be right about probability and still lose money. Proper risk management ensures you survive losing streaks and compound gains over time.

Position Sizing: The Kelly Criterion

The Kelly Criterion optimizes bet sizing based on your edge and odds.

• Full Kelly is aggressive - Consider using half or quarter Kelly
• Never bet more than Kelly suggests - Overbetting is the #1 mistake
• Be conservative with edge estimates - Your edge is probably smaller than you think

Bankroll Management

• Only trade with money you can afford to lose - This is gambling, not investing
• Set a maximum position size - Never more than 5-10% on a single market
• Track your results - Know your win rate and average returns
• Withdraw profits periodically - Lock in gains, reduce temptation to overtrade

Diversification

• Spread across markets - Don't put everything in one event
• Avoid correlated positions - Multiple political markets may move together
• Use different timeframes - Mix short and long-term positions
• Consider different platforms - Reduce platform-specific risks

Risk Types to Manage

Stop Losses & Exit Rules

• Set exit points before entering - Know when you'll cut losses
• Consider time-based exits - Exit if thesis isn't playing out
• Take partial profits - Scale out as positions move in your favor
• Don't move your stop loss - Stick to your original plan

Related Resources

• Portfolio Strategies
• Professional Trading Tools
• Analytics Tools