Understanding Liquidity in Prediction Markets
Key takeaway: For prediction market participants, liquidity stands as the paramount consideration. Markets with substantial liquidity deliver narrow bid-ask gaps, rapid order execution, and reliable price discovery. Polymarket dominates the landscape with over $1.5B in total traded volume; alternative venues typically command considerably less depth.
Liquidity within prediction markets shapes your entire trading experience — influencing execution costs and your capacity to unwind positions swiftly. Yet novice traders frequently prioritise market selection over liquidity assessment. This article explores why liquidity transcends all other considerations.
What is liquidity?
Liquidity in financial markets refers to the ease with which you can transact in an asset without materially affecting its quoted price. Within prediction markets, liquidity comprises three distinct dimensions:
- Depth: The quantity of shares accessible at successive price points within the order book
- Spread: The differential between the highest purchase price (bid) and the lowest sale price (ask)
- Volume: The aggregate number of shares transacted during a specified timeframe
A market displaying 10,000 shares bidding at 48 cents and 10,000 shares offered at 50 cents exhibits liquidity. Conversely, a market with merely 50 shares on either side separated by a 10-cent gap demonstrates illiquidity.
Why liquidity matters for traders
Insufficient liquidity diminishes profitability through multiple channels:
- Wider spreads: Entry and exit costs increase substantially
- Slippage: Sizable positions cause adverse price movement
- Trapped positions: Absence of willing buyers prevents exit prior to market settlement
- Price inaccuracy: Sparse trading prevents prices from converging toward genuine probabilities
How to measure prediction market liquidity
Prior to executing any trade, examine the following metrics:
- Order book depth: Leverage PolyGram's depth visualisation to assess buy and sell concentrations
- 24h volume: Elevated activity indicates robust participation — facilitating order fills
- Number of unique traders: Markets attracting 100+ distinct participants typically possess sufficient liquidity for standard retail positions
- Spread percentage: Target markets where spreads remain below 3 cents (3%) for economical execution
Which platforms have the most liquidity?
| Platform | Cumulative volume | Avg. spread |
| Polymarket | $1.5B+ | 1-3 cents |
| Kalshi | $500M+ | 2-5 cents |
| Betfair Exchange | N/A (sports-focused) | 1-2% on sports |
| Augur/Azuro | $50M+ | 5-15 cents |
How market makers create liquidity
Institutional liquidity providers simultaneously post bids and asks, capturing the spread whilst supplying counterparties with trading opportunities. Polymarket incentivises these participants through fee reductions and MATIC incentives. PolyGram's proprietary liquidity infrastructure replicates Polymarket's order book, granting PolyGram traders access to equivalent depth as those trading directly on Polymarket.
Tips for trading illiquid markets
- Employ limit orders exclusively — refrain from market orders in sparse conditions
- Distribute substantial orders across multiple price tiers
- Exercise patience: position your limit and await execution rather than accepting unfavourable fills
- Account for temporal dynamics — illiquid markets frequently gain depth as settlement approaches
Trade on the most liquid prediction market platform. Start trading on PolyGram →