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cryptovcdegen

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most Polymarket bots die the same way they quote symmetrically around mid-price price moves they absorb the loss repeat until account is empty the fix has been in academic papers since 2008 Stoikov figured it out studying stock market microstructure the math translates directly to prediction markets here's what actually matters: mid-price is a bad signal it's the average of best bid and ask on thin Polymarket orderbooks that number is almost meaningless what you want is VAMP Volume Adjusted Mid Price you walk into the orderbook depth and calculate the weighted average price for a given volume filters out the gaps, gives you a real reference point then you stop quoting symmetrically the reservation price formula: r = Mid - β × Q Q is your current inventory if you're long YES contracts, r shifts down automatically your bot starts selling YES cheaper and stops buying aggressively target is always flat inventory the spread isn't static either it has two components: volatility premium (widens when market moves fast) microstructure premium (depends on how often orders actually fill) if Polymarket odds start swinging fast, spread widens in real time static spread = guaranteed adverse selection - one more thing Stoikov points out: small tick size markets are where this model actually works large-tick markets (CME futures, liquid ETFs) have massive queues you can't nudge your price by a fraction of a tick without losing your place Polymarket is small-tick by nature binary markets, USDC pricing, sparse orderbooks that's exactly the environment this model was built for the P&L comparison between naive bots and inventory-controlled bots is not close naive strategy: wide distribution, occasional huge wins, regular wipeouts inventory control: tight distribution, consistent positive drift, rare catastrophic losses the "pennies in front of a steamroller" problem doesn't go away but you can see the steamroller coming if you're watching orderbook imbalance when bid volume heavily outweighs ask volume price is about to move up your bot should already be adjusting before the move happens that's the wealth still building the inventory control layer myself using for live execution in the meantime it handles the market scanning and order management while i finish the rest

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