Market Maker

A market maker is a participant who continuously provides both buy (bid) and sell (ask) orders on a prediction market, earning the spread in exchange for providing liquidity to other traders.

CLI:sf depth KXRECSSNBER-26

Market Making in Prediction Markets

Market makers serve a critical function: they make it possible for other traders to enter and exit positions instantly. Without market makers, you'd have to wait for a specific counterparty who wants the opposite side of your trade.

How Market Makers Profit

A market maker might post:

Bid (buy order): 42 cents for "Yes"
Ask (sell order): 45 cents for "Yes"

The 3-cent gap is the spread. If someone sells to the market maker at 42 cents and someone else buys from them at 45 cents, the market maker earns 3 cents per contract without taking directional risk.

Market Making on Kalshi vs. Polymarket

Kalshi uses a central limit orderbook (CLOB). Market makers post resting limit orders. Kalshi has designated market maker programs with fee incentives.

Polymarket uses an automated market maker (AMM) based on a constant-function formula. Liquidity providers deposit funds into pools rather than managing individual orders. The AMM algorithmically adjusts prices based on supply and demand.

Impact on Traders

Market maker behavior affects your trading:

Tight spreads mean lower costs to enter/exit
Deep books mean you can trade larger sizes without moving the price
Thin books mean your order might cause significant slippage

You can check market maker activity using sf depth to see the full orderbook.

Example

Orderbook for KXRECSSNBER-26:

  BIDS (buyers)         ASKS (sellers)
  100 @ $0.26           50 @ $0.29
  200 @ $0.25           150 @ $0.30
  500 @ $0.24           200 @ $0.31

Spread: $0.29 - $0.26 = $0.03 (3 cents)
Midpoint: ($0.26 + $0.29) / 2 = $0.275

Market makers are likely posting on both sides,
earning ~3 cents per round-trip trade.

Related Terms

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). It represents the cost of trading immediately.

Orderbook

An orderbook is a real-time list of all outstanding buy and sell orders for a prediction market contract, organized by price level. It shows the supply and demand at every price point.

Bid and Ask Prices

The bid price is the highest price a buyer is currently willing to pay for a contract. The ask price is the lowest price a seller is currently willing to accept. Together they define the tradeable price range.

Market Depth

Market depth is the total quantity of resting orders at each price level in the orderbook. Deep markets can absorb large trades with minimal price impact; shallow markets cannot.

Liquidity

Liquidity is the ease with which you can buy or sell a prediction market contract without significantly affecting its price. Liquid markets have tight spreads, deep orderbooks, and high trading volume.

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