How Collateral Works
When a trade executes at a given price: Buyers (Long Positions)- Pay the contract price
- No additional margin required
- Maximum loss: amount paid
- Maximum gain: $1.00 – price paid
- Receive the contract price as proceeds
- Post $1.00 margin per contract (full payout value)
- Fiat balance increases by sale proceeds
- Buying power decreases by (Payout Value – Sale Price)
- Maximum loss: $1.00 – sale price
- Maximum gain: sale price
| Participant | Cash Flow | Margin Required | Buying Power Change |
|---|---|---|---|
| Buyer | –$0.40 | $0 | –$0.40 |
| Seller | +$0.40 | $1.00 | –$0.60 |
Maximum Gain and Loss
Once a trade is executed, maximum gain and loss are fixed and do not change regardless of subsequent price movements. For a contract trading at $0.40:| Position | Max Loss | Max Gain |
|---|---|---|
| Buy (Long) | $0.40 | $0.60 |
| Sell (Short) | $0.60 | $0.40 |
Shorting Mechanics
Shorting lets you take the opposite side of a market by selling a yes contract without owning it. You receive the sale price immediately, and margin equal to the full payout value ($1.00 per contract) is locked to cover your potential obligations at settlement. Shorts are created by selling yes contracts and posting $1.00 margin per contract. The collateral requirement is the full payout value ($1.00), not max loss. There is no collateral release from offsets or favorable price moves.Trading Examples
Buying yes at $0.60 (Long Position)- At trade: You pay $0.60 per contract. Fiat balance decreases by $0.60, and buying power decreases by $0.60 because cash has been converted into a position.
- Position value: $0.60 (quantity × last price)
- If yes wins: You receive $1.00 (P/L = +$0.40)
- If yes loses: You receive $0 (P/L = –$0.60)
- At trade: You receive $0.60 in sale proceeds. Fiat balance increases by $0.60. You must post margin equal to the payout value: $1.00 per contract. The net effect on buying power: +$0.60 (proceeds) – $1.00 (margin) = –$0.40.
- Position value: $0.40 (quantity × [$1.00 – $0.60])
- If yes wins: Loss is the full $1.00 payout minus the $0.60 proceeds (P/L = –$0.40)
- If yes loses: You keep the $0.60 proceeds and margin is released (P/L = +$0.60)
P/L Summary Table
| Action | Outcome | P/L |
|---|---|---|
| Buy yes @$0.60 | yes wins | +$0.40 |
| Buy yes @$0.60 | yes loses | –$0.60 |
| Sell yes @$0.60 | yes wins | –$0.40 |
| Sell yes @$0.60 | yes loses | +$0.60 |
Short Position Details
In a “Did X happen?” market, you can express a view by either buying yes (betting the event happens) or selling yes (betting the event does not happen). When you take a short position, you are selling yes without owning it; i.e., expressing the view that the event will not occur. All shorts must be fully collateralized through a margin requirement equal to the payout value ($1.00 per contract), ensuring you can cover potential losses if the market moves against you. For example, if yes is trading at $0.60 and you short 100 contracts, you receive $60 in proceeds from the buyer, but you must also post $100 in margin. Your fiat balance increases by $60, but your buying power decreases by $40 ($60 proceeds – $100 margin locked). Cash flow by position type:- Long yes: Fiat balance decreases by the purchase cost, buying power decreases by the same amount (cash converted to position).
- Short yes: Fiat balance increases by sale proceeds, but buying power decreases by (Payout Value – Sale Price) due to the full $1.00 margin locked per contract.
Portfolio Value Calculation
Portfolio value accounts for both buying power and position values: For long positions: Portfolio Value = Buying Power + (Quantity × Last Price) For short positions: Portfolio Value = Buying Power + (Quantity × [Payout Value – Last Price]) Example: You have $5 starting balance and sell 1 yes contract @ $0.70:- Fiat Balance: $5.70 (received $0.70 proceeds)
- Margin Requirement: $1.00 (locked)
- Buying Power: $4.70 ($5.70 – $1.00)
- Position value: 1 × ($1.00 – $0.70) = $0.30
- Portfolio Value: $4.70 + $0.30 = $5.00 ✓
Settlement and Payout
At settlement, Polymarket Clearing releases funds automatically:- Winners receive $1.00 per contract
- Losers receive $0
- No margin calls, reconciliations, or additional obligations
- Seller keeps: $0.40 proceeds
- Margin released: $1.00
- Total return: $1.40
- Net profit: $0.40
- Seller’s $1.00 margin → paid to buyer
- Seller keeps: $0.40 proceeds
- Net loss: $0.60
Collateral Management
Collateral and margin are managed at the clearing level:- You submit a withdrawal (e.g., $100) via Aeropay.
- The DCO (Derivatives Clearing Organization) reviews it.
- The DCM (Designated Contract Market) denies the request if it would leave insufficient buying power to meet margin obligations.
Portfolio Margin
Polymarket Exchange applies portfolio-level margining, meaning margin requirements consider your entire set of open positions rather than treating each market in isolation. You can maintain many open positions across different markets, as long as the aggregate exposure does not exceed your available buying power.Reducing or Closing a Short
You can reduce or close a short at any time by buying back the yes contracts you sold. Examples:- Short 1 yes, buy back at a lower price - Your exposure is closed and margin is released.
- Short 10 yes, buy back 4 - Your remaining exposure decreases, and proportional margin is unlocked.
Key Points
- Buyers post the purchase price; sellers post $1.00 margin per contract.
- Maximum gain and loss are fixed at the time of the trade.
- Sellers receive sale proceeds but must post full payout value as margin.
- Polymarket Clearing guarantees payout from the seller’s locked margin.
- There are no negative balances or margin calls.
- Shorting lets you express a bearish view on the yes outcome and provides liquidity to the market.