Prediction-Market Risk Management: 5 Rules Before You Bet

Polymarket rewards probability, not passion. The markets that look most obvious are often the most crowded — and the most dangerous when new information arrives. Treating prediction markets like a portfolio, not a casino, is the single habit that separates accounts that compound from accounts that blow up.

Rule 1 — Never stake more than the edge justifies

If an event is fairly priced at 60%, the expected value of a full-size bet is thin and the drawdown risk is real. Size positions so a single wrong call cannot end the account. Most pros risk a fixed small fraction per market, not their conviction.

Rule 2 — Diversify across uncorrelated outcomes

• Spread stakes across independent events, not one narrative.
• Hedge binary exposure when the other side is cheap.
• Cap any single market at a fraction of total capital.
• Keep dry powder for mispricings the crowd has not noticed yet.

The market is a probability machine, not a scoreboard.