How to Measure Liquidity in Prediction Markets
Liquidity in prediction markets is measured by the tradeable price, which combines the displayed price with order book depth and your exit path. A high quoted price means little if you cannot trade significant volume at that level. The displayed price is only the headline. Thin order books make large orders fill at levels far from what was shown, so a market quoting 63c can give you a very different actual fill once you enter with real size. Exiting is often harder than entering, and some markets look fine until you try to unwind a position quickly. Work liquidity into your expected value math from the start, since an edge you cannot bet on is the same as no edge at all. Top-of-book EV can be misleading when depth cannot support your trade size, so simulate fills with depth caps and a slippage tax before trusting paper EV. On the supply side, many market making bots on Polymarket earn more from farming liquidity rewards, meaning maker rebates, than from spread capture, and market making alone is no edge without a genuine read on the event and its true probabilities.
