Balancing Inventory for Market Making on Polymarket

Updated 6 November 2026 · Standard formula, shown below

This guide explains how to balance your inventory when market making on Polymarket, a prediction market platform. You’ll learn to manage your positions across outcomes to reduce risk, maintain liquidity, and avoid large directional exposure. By the end, you’ll have a step-by-step process to keep your book balanced, along with common pitfalls and troubleshooting tips.

What You’ll Need

A Polymarket account with funds deposited in USDC.
Basic understanding of market making (placing both bid and ask orders).
Access to a spreadsheet or calculator for quick math (optional but helpful).
Patience and discipline to follow your plan.

Step-by-Step

Choose a market to make markets in. Pick a market with clear binary outcomes (e.g., “Will X happen by date?”) and sufficient trading volume. Avoid markets with many outcomes (like multi-choice) until you’re comfortable.
Understand the current probabilities. Look at the order book and the mid-market price. For a binary market, the price of one share (e.g., YES) implies the probability of that outcome. The complementary outcome (NO) should be priced at 1 – price (in dollars). For example, if YES is trading at $0.60, NO should be around $0.40.
Set your target inventory. Decide what a balanced book looks like. A common goal is to have roughly equal dollar exposure to both sides. For instance, if you hold 100 YES shares and 100 NO shares, you’re balanced. But if you hold 100 YES and 50 NO, you’re skewed.
Place quotes on both sides. To balance, you need to adjust your quotes. If you’re long YES (too many YES shares), you should sell YES (place an ask) and buy NO (place a bid). If you’re long NO, do the opposite. Set your ask slightly above the fair value and your bid slightly below to earn the spread.
Calculate your delta. For each order you place, estimate how it changes your inventory. For example, if you sell 10 YES shares, your YES inventory decreases by 10. If you buy 10 NO shares, your NO inventory increases by 10. Keep a running tally.
Adjust quotes based on fills. When an order fills, re-evaluate your inventory. If you filled a sell on YES, you now have fewer YES shares. If that makes you long NO, adjust your quotes to bring the book back to balance. For instance, lower your ask on YES to sell more, or raise your bid on NO to buy more.
Monitor the market price. As the market moves, the fair value changes. If the probability of YES rises, your YES shares become more valuable, but your NO shares lose value. Rebalance by selling some YES (if you have excess) and buying NO, or vice versa.
Use the ‘redeem’ function when possible. On Polymarket, when a market resolves, winning shares can be redeemed for $1 each. If you hold both YES and NO shares, you can redeem the winning side and lose the losing side. But if you hold equal amounts, you break even (minus fees). This is a natural hedge.
Keep a log. Track your trades, inventory, and P&L. This helps you see if your balancing strategy is working and where you might be leaking money.
Review and repeat. At the end of each day, review your positions. If you’re consistently skewed, adjust your quoting strategy. For example, if you always end up long YES, widen your YES ask and narrow your YES bid.

Common Mistakes

Ignoring the complementary outcome. Forgetting that buying YES is equivalent to selling NO (and vice versa) can lead to accidental skew.
Chasing the market. If the price moves against you, don’t panic and dump all your shares. That locks in losses. Instead, adjust your quotes gradually.
Over-trading. Placing too many orders can rack up fees and cause you to miss the big picture. Stick to your plan.
Not accounting for fees. Polymarket charges a small fee on trades. Make sure your spread covers these costs.
Holding too much inventory. If you accumulate a large position in one outcome, you’re taking on directional risk. Set a maximum inventory limit and stick to it.

Tips

Start small. Trade with a small amount first to get a feel for the mechanics.
Use limit orders, not market orders. Limit orders let you control the price and reduce slippage.
Think in terms of probabilities. The price is the market’s estimate of probability. Your edge comes from having a better estimate.
Be patient. Sometimes the market is quiet, and you won’t get fills. That’s okay.
Consider using a bot. For advanced users, automated market making can help maintain balance, but it requires programming skills and careful testing.

Troubleshooting

Your inventory is heavily skewed. If you’re long YES and the price drops, you’re losing money. To rebalance, sell YES at a slightly lower price than you’d like, or buy NO. If you’re long NO and the price of YES rises, do the opposite. The key is to act quickly but not impulsively.
You’re not getting any fills. Your quotes might be too far from the market. Tighten your spread, but make sure you’re still profitable. Alternatively, the market might be illiquid; consider moving to a more active market.
You’re getting too many fills on one side. If you keep selling YES and buying NO, your inventory will skew. Widen your ask on YES and narrow your bid on NO to discourage one-sided flow.
The market resolves unexpectedly. If the market resolves while you hold both sides, you’ll redeem the winning side. If you’re balanced, you break even. If you’re not, you’ll have a loss. This is why balancing is crucial.
You’re unsure about the true probability. Do your own research. Use external sources, news, and data to form an independent view. Don’t just rely on the market price.

Frequently Asked Questions

Q: What does it mean to be ‘long’ or ‘short’ on Polymarket?

Being long means you own shares of an outcome (e.g., YES). Being short means you owe shares, which is equivalent to owning the opposite outcome (e.g., NO). Since you can always buy the opposite, you’re effectively short when you sell a share you don’t own.

Q: Can I lose more than I put in?

No. On Polymarket, you can only lose the amount you deposit. You cannot go negative, as shares are settled in USDC.

Q: How do fees work?

Polymarket charges a fee on each trade, typically a small percentage of the notional value. The fee is deducted from your balance. Make sure your spread covers these costs.

Q: What is the ‘spread’?

The spread is the difference between the best bid (highest price a buyer will pay) and the best ask (lowest price a seller will accept). As a market maker, you earn the spread by buying at the bid and selling at the ask.

Q: How do I redeem shares after a market resolves?

After resolution, winning shares can be redeemed for $1 each. Go to the market page and click ‘Redeem’ if you have winning shares. Losing shares become worthless.

Q: Is market making on Polymarket profitable?

It can be, but it’s not guaranteed. You earn the spread, but you take on risk if the market moves against you. Balancing your inventory reduces that risk, but you still need a good edge in estimating probabilities.

Method: the standard formula for this calculation, rounded as each result states. See how the calculators work or report an error.