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Content reviewed: 2026-10-13. Examples are hypothetical.
A prediction market portfolio is a collection of exposures to events, settlement sources and platforms. Counting contracts is not enough to measure diversification. Several positions can lose together because they depend on the same underlying development.
Start with a capital budget
Separate money reserved for essential expenses from money allocated to speculative contracts. Keep a cash buffer for known obligations instead of assuming you can sell any position instantly. The SEC's investor education explains that allocation depends on time horizon and ability to bear losses.[1]
Record each position's maximum loss and the date by which you may need the money. For fully funded purchases, initial cost is a useful starting point for loss exposure. It does not cover every possible liability in leveraged or derivative products, which are outside this guide.
Group positions by shared drivers
An illustrative exposure sheet can reveal concentrations hidden by different titles:
| Position | Common driver | Settlement dependency |
|---|---|---|
| Candidate wins nomination | Candidate's political strength | Nomination rules |
| Candidate wins election | Candidate's political strength | Election rules |
| Party wins an associated contest | Shared turnout or news | Separate contest rules |
| Economic threshold contract | Economic conditions | Named data release |
The first three positions might all suffer from one unfavorable announcement. Spreading them over two platforms changes operational concentration but does not remove their shared event risk.
Stress-test complete scenarios
Use a hypothetical $1,000 trading bankroll with $150 exposed to one election theme, $100 to weather and $100 to economic releases. A scenario that loses every open purchase leaves $650 before other costs. Whether that is tolerable depends on your circumstances; the numbers are an example, not recommended allocations.
Add a platform-unavailable scenario and a delayed-settlement scenario. Ask whether the remaining accessible cash covers your planned obligations. Avoid assigning precise correlations when you do not have enough comparable observations; explicit adverse scenarios can be more honest than a fragile statistical matrix.
Size jointly, not contract by contract
The simple Kelly calculation evaluates a single binary position.[2] Applying its maximum independently to several correlated markets can allocate far too much capital to one event. Establish a total limit for the shared theme, then consider how any new trade changes that exposure.
Review on a schedule and after material news
Keep entry evidence, cost, current tradable value and settlement date in one ledger. Reassess when an event's meaning changes or several positions become more tightly connected. A profitable position can grow into a concentration even without additional purchases.
Diversification reduces some risks; it does not guarantee a profit or protect against every loss.[1] Use the exit guide when the portfolio no longer matches the risks you intended to hold.
References
- U.S. Securities and Exchange Commission, Investor.gov. Asset Allocation and Diversification. Accessed October 13, 2026.
- J. L. Kelly Jr. A New Interpretation of Information Rate. Bell System Technical Journal 35(4), 917-926, July 1956. DOI: 10.1002/j.1538-7305.1956.tb03809.x.