Bankroll Management for Prediction Markets: The Complete Guide

Here’s a painful truth: most prediction market traders who lose money aren’t wrong about their predictions. They’re wrong about their position sizes.

I’ve seen people nail the direction on a market, then lose everything because they bet too big and got wiped out by temporary price swings before their prediction came true.

Bankroll management is the boring part of trading that nobody wants to talk about. But it’s the difference between surviving long enough to be profitable and blowing up your account in month one.

Let me show you how the serious traders think about this.

The First Rule: Define Your Bankroll

Your bankroll is the money specifically set aside for prediction market trading. Not your savings. Not your rent money. Not your emergency fund.

It’s money you can lose entirely without affecting your life.

Be honest with yourself here. If losing $5,000 would cause real stress, your bankroll isn’t $5,000. Maybe it’s $1,000. Maybe it’s $500.

Starting small isn’t shameful. It’s smart. You can always add more once you’ve proven you can trade profitably.

A good starting point for most people: $500-2,000. Enough to take meaningful positions. Small enough that losing it won’t hurt.

Position Sizing: The Kelly Criterion

Professional bettors use something called the Kelly Criterion to size positions. Here’s the simplified version:

Kelly % = (Win Probability x Payout) - (Loss Probability) / Payout

In prediction markets, if you think something has a 60% chance of happening and it’s trading at 50 cents (2:1 payout), Kelly says:

(0.60 x 2) - (0.40) / 2 = (1.2 - 0.4) / 2 = 40%

Kelly says bet 40% of your bankroll. But here’s the thing: full Kelly is aggressive. Too aggressive for most people.

Professional gamblers typically use half Kelly or quarter Kelly. It reduces variance while keeping most of the edge.

Practical recommendation: Never risk more than 5-10% of your bankroll on a single position.

Even if you think you have a massive edge. Even if you’re really confident. Cap it at 10%.

Why? Because you’re going to be wrong sometimes. And when you’re wrong, you need enough capital left to recover.

The Unit System

A simpler approach than Kelly: the unit system.

Define a “unit” as a fixed percentage of your bankroll. Typically 1-2%.

$1,000 bankroll = $10-20 per unit.

Then size positions in units:

• Low confidence, small edge: 1 unit
• Medium confidence: 2-3 units
• High confidence, strong edge: 4-5 units
• Maximum conviction (rare): 5-10 units

This gives you flexibility while maintaining discipline. You never bet so much that a single loss destroys you.

Adjust your unit size as your bankroll changes. If you grow to $2,000, your unit becomes $20-40. If you shrink to $500, your unit becomes $5-10.

Correlated Risk: The Hidden Killer

Here’s where most traders mess up: they don’t account for correlation.

If you have five positions that all lose if the same thing happens, you don’t have five positions. You have one big position spread across five markets.

Example: You bet on Republicans winning the House, Senate, and Presidency. You also bet on tax cuts happening and defense spending increasing. These are all correlated. If Democrats sweep, you lose everything at once.

Rule: Treat correlated positions as a single combined position for bankroll purposes.

If your max position is 10% and you have five correlated bets, each should be 2% or less.

Better yet: diversify across uncorrelated events. Politics, sports, economics, weather. When one goes against you, others might go your way.

Cash Reserve Strategy

Never deploy 100% of your bankroll into active positions.

Keep 20-30% in cash (or earning interest on Kalshi). Here’s why:

1. Opportunity cost. When a great opportunity appears, you need capital to deploy.

2. Averaging down. If a position moves against you temporarily, cash lets you add at better prices.

3. Psychological buffer. Having cash prevents panic selling during drawdowns.

The best opportunities often appear suddenly. News breaks. Prices spike. If you’re fully invested, you’re watching from the sidelines.

Drawdown Management

Drawdowns happen. Even to the best traders. What matters is how you respond.

The 20% Rule:

If your bankroll drops 20% from its peak, stop. Take a break. Analyze what went wrong.

Don’t try to “win it back” with bigger bets. That’s how 20% drawdowns become 50% drawdowns become blown accounts.

The 50% Rule:

If you’ve lost 50%, something is fundamentally wrong with your approach. Either your edge isn’t real, or your sizing is broken.

Stop trading. Go back to paper trading or tiny positions until you figure it out.

Profit Taking and Reinvestment

What do you do when you’re winning?

Option 1: Compound everything

Reinvest all profits. Your bankroll grows. Your unit sizes increase. Potential returns accelerate.

Good for: People with genuine edge who want maximum growth. Risk-tolerant traders.

Option 2: Lock in profits

Withdraw profits periodically. Keep your bankroll stable. Bank the wins.

Good for: Conservative traders. People who don’t trust themselves not to give it back.

Option 3: Hybrid approach

Reinvest half your profits. Withdraw half. Your bankroll grows slower but you’re locking in real gains.

This is what I recommend for most people. It provides psychological wins (actual money in your bank) while still growing your trading capital.

Platform-Specific Considerations

Kalshi:

Your balance earns interest (around 4-5% APY). This means holding cash has less opportunity cost. You can afford to keep more in reserve.

Fees exist but are capped. Factor them into your expected returns when sizing positions.

Polymarket:

No fees (or minimal fees). But also no interest on idle balance. Capital sitting unused is truly idle.

This pushes toward higher deployment rates. But don’t get too aggressive.

Multiple platforms:

If you trade on both, think about your combined bankroll. $1,000 on Kalshi plus $1,000 on Polymarket equals a $2,000 total bankroll. Size accordingly.

Tracking Your Results

You can’t manage what you don’t measure. Track every trade.

Minimum tracking:

• Date
• Market
• Entry price
• Position size (in dollars and % of bankroll)
• Exit price
• Profit/Loss
• Notes on why you took the trade

Review weekly. What’s working? What isn’t?

Spreadsheets work fine. Some people use Notion. Others use dedicated trading journals. The format matters less than consistency.

Common Bankroll Mistakes

Mistake 1: Sizing up after wins

You win a few trades. You feel confident. You start betting bigger.

Then you lose. A lot. Because your sizing was based on confidence, not edge.

Don’t increase position sizes just because you’re running hot. Increase them because your bankroll actually grew.

Mistake 2: Chasing losses

Down 15%. You bet bigger to recover faster. Now you’re down 30%.

This is how people blow up. Losses are information. Use them to improve, not to justify bigger bets.

Mistake 3: Ignoring correlation

Covered earlier, but worth repeating. Five correlated bets aren’t diversification.

Mistake 4: Confusing account size with bankroll

If you deposit $10,000 but can only afford to lose $2,000, your bankroll is $2,000. Size positions based on what you can actually lose.

Mistake 5: No exit strategy

Know when you’ll exit before you enter. At what price do you cut losses? At what profit do you take money off the table?

Decide this upfront, not in the moment when emotions are running high.

The Conservative Path

If you’re new to prediction markets, start more conservative than you think you need to.

First month: 1% position sizes max. You’re learning. Tuition should be cheap.

Months 2-3: Move to 2-3% for positions you understand well.

Months 4+: If you’re profitable, gradually move toward 5% for your best opportunities.

Building slowly is boring. It’s also how you’re still around a year from now.

The Bottom Line

Prediction markets reward patience and discipline more than brilliance.

You don’t need to find 10x opportunities. You need to find small edges, size them appropriately, and repeat hundreds of times.

The traders who last are the ones who respect risk. They survive the inevitable losing streaks. They’re still around when the opportunities appear.

Your bankroll is your ammunition. Don’t waste it on oversized bets. Don’t blow it on correlated risks. Manage it carefully and it’ll grow over time.

That’s not exciting advice. But it’s the advice that works.