Cross-Market No-Arbitrage Violation in Related Election Markets

How It Works Related political markets on Polymarket (e.g., 'Candidate A wins State X' and 'Candidate A wins presidency') must satisfy logical probability constraints. When market prices violate these constraints — e.g., implied probabilities of mutually exclusive outcomes sum to more or less than 1, or conditional probability relationships are broken — a risk-free or near-risk-free profit can be locked in by simultaneously trading both legs.

Entry/Exit Conditions Entry is triggered when a detected spread between related markets exceeds a minimum threshold accounting for transaction costs. The bot scans political market pairs or groups continuously. Positions are held until prices converge or markets resolve. Fractional Kelly criterion is used for position sizing, which is a mathematically sound approach to balancing growth and drawdown risk.

Verification No live performance results are published. The system defaults to paper trading, described explicitly as 'survival over profit,' which is conservative but means no on-chain edge verification exists. The repo has 0 stars/forks, limiting peer review.

Implementation Notes The bot requires mapping related markets — a non-trivial data engineering task on Polymarket where market relationships are not formally encoded. Backtested out-of-sample edge is a stated prerequisite before any live trading, which is a disciplined approach. Fractional Kelly sizing requires an accurate estimate of edge probability and magnitude.

Risks Political markets can gap violently on news, making simultaneous execution of both legs difficult. Apparent arbitrage may reflect genuine information asymmetry rather than mispricing. Settlement rules on related markets may differ, creating basis risk. Low liquidity in one leg can prevent full position establishment.