Simple Functions
GLOSSARY/TRADING

Take Profit

A take-profit level is a pre-defined exit condition that closes your position when the price reaches your target. It locks in gains before the market can reverse.

CLI:sf strategies

Taking Profits in Prediction Markets

Take-profit orders are the mirror image of stop losses. While stops protect your downside, take-profit levels secure your upside.

When to Take Profits

There are several approaches:

  1. Thesis-implied target: Exit when the market price reaches your estimated fair value. If your thesis says 50% and you bought at 30 cents, take profits at 50 cents.
  2. Partial scaling: Take profits in stages. Sell 1/3 at 40 cents, 1/3 at 50 cents, hold the final 1/3 for settlement.
  3. Edge depletion: Exit when the edge shrinks below a minimum threshold (e.g., below 3 points).

The Challenge of Prediction Markets

Unlike stocks, prediction market contracts have a hard ceiling at $1.00 and floor at $0.00. This bounded payoff means:

  • Your maximum possible profit is $1.00 minus your entry price
  • Contracts above 80 cents have limited upside remaining
  • The reward/risk profile changes as the price moves

Take Profit in SimpleFunctions

The strategy engine's takeProfit parameter sets a price level at which the system will look to exit. Combined with soft conditions, you can create nuanced exit strategies:

  • takeProfit: 55 — sell when bid reaches 55 cents
  • Soft: "Scale out 50% at target, hold remainder for settlement"

Don't Hold to Settlement

Unless your thesis strongly suggests the event will happen (>80% confidence), consider taking profits before settlement. Contracts can whipsaw violently in the final days, and the time value of capital matters.

Example

Entry: Bought 300 contracts at $0.30 (cost: $90)
Thesis target: 50% ($0.50)

Scaling plan:
  At $0.40: Sell 100 contracts → Profit: 100 × $0.10 = $10
  At $0.50: Sell 100 contracts → Profit: 100 × $0.20 = $20
  At $0.60: Sell 100 contracts → Profit: 100 × $0.30 = $30

Total profit if fully scaled: $60 (67% return on $90)

Alternative: Hold all to settlement
  If settles Yes: 300 × $0.70 = $210 profit (233% return)
  If settles No:  300 × $0.30 = $90 loss (100% loss)
  Expected value at 50%: $210 × 0.5 - $90 × 0.5 = $60

Related Terms

Edge

Edge is the difference between the market price of a prediction market contract and your estimated true probability. Positive edge means you believe the contract is mispriced in your favor.

Position Sizing

Position sizing determines how many contracts to buy based on your edge size, confidence level, and bankroll. The Kelly criterion is the mathematically optimal approach: bet a fraction of your bankroll proportional to your edge.

Stop Loss

A stop loss is a pre-defined exit condition that closes your position when the price moves against you past a threshold. In prediction markets, stops can be based on price, thesis confidence, or causal node changes.

Cost Basis

Cost basis is your average entry price across all purchases of the same contract. If you buy 100 contracts at 28 cents and 100 more at 32 cents, your cost basis is 30 cents.

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