Polymarket Market Maker Bot

Production-grade Polymarket CLOB market-making bot with optimized inventory management, spread farming, intelligent cancel/replace cycles, and automated risk controls.
Designed for professional market makers seeking balanced exposure, efficient quote placement, and maximum spread capture on Polymarket prediction markets.

What This Bot Does

The Polymarket Market Maker Bot provides:

• Real-time market making on Polymarket CLOB (Central Limit Order Book)
• Balanced inventory management with mirrored YES/NO exposure control
• Intelligent quote placement at top-of-book for maximum spread capture
• Optimized cancel/replace cycles tuned for 500ms taker delay
• Passive order execution to earn maker rebates and avoid crossing
• Risk management with exposure limits, position size caps, and inventory skew checks
• Auto-redeem for settled markets and profitable positions
• Gas batching to minimize on-chain transaction costs
• Real-time orderbook tracking via WebSocket for low-latency updates

Core Features

Inventory Balance & Exposure Control

• Mirrored YES/NO positioning – Maintains balanced exposure across both sides
• Net exposure limits – Configurable min/max exposure in USD
• Inventory skew detection – Automatically adjusts quote sizes when inventory becomes unbalanced
• Automatic rebalancing – Smart quote sizing to reduce runaway inventory
• Target inventory balance – Maintains desired net exposure level

Spread Farming Efficiency

• Top-of-book quoting – Places orders at best bid/ask for maximum fill probability
• Passive order execution – All orders are maker orders to earn rebates
• Queue positioning – Optimized order placement for better queue position
• Missed fill reduction – Fast cancel/replace cycles to capture spread opportunities
• Anti-crossing logic – Prevents accidental taker orders

Cancel/Replace Cadence

• Low-latency refresh cycles – Configurable quote refresh rate (default: 1000ms)
• 500ms taker delay optimization – Timing logic tuned for Polymarket's 500ms delay
• Batch cancellations – Groups cancel requests to reduce API calls and gas costs
• Stale order detection – Automatically cancels orders exceeding lifetime threshold
• Smooth quote transitions – No gaps or overlaps during refresh cycles

Market Discovery & Real-Time Updates

• 15m/1h window discovery – Automatically discovers markets within discovery windows
• WebSocket orderbook feeds – Real-time L2 orderbook updates for instant quote adjustments
• Trade feed monitoring – Tracks fills and adjusts inventory automatically
• Market info caching – Efficient market metadata retrieval

Risk Management

• Exposure limits – Hard caps on net exposure in USD
• Position size limits – Maximum single order size
• Inventory skew limits – Prevents excessive position concentration
• Stop-loss protection – Optional percentage-based stop-loss
• Pre-trade validation – All orders validated before placement

Auto-Redeem & Gas Optimization

• Automatic redemption – Redeems settled positions above threshold
• Gas batching – Groups multiple operations to reduce gas costs
• Configurable gas price – Customizable gas price in Gwei
• Efficient order lifecycle – Minimizes on-chain operations

Performance Monitoring

• Prometheus metrics – Real-time metrics for orders, inventory, exposure, and profit
• Structured JSON logging – Full audit trail of all operations
• Fill rate tracking – Monitors passive fill rates
• Latency metrics – Quote generation and placement latency tracking

Technical Architecture

┌─────────────────────┐      ┌──────────────────────┐      ┌──────────────────┐
│ Polymarket CLOB API │      │ Market Maker Bot     │      │ Inventory Mgr    │
│ (REST + WebSocket)  │ <--> │ (Quote Engine)       │ <--> │ (Balance Ctrl)   │
└─────────────────────┘      └──────────────────────┘      └──────────────────┘
         │                           │                            │
         │                           v                            │
         │                  ┌──────────────────┐                 │
         │                  │ Order Executor   │                 │
         │                  │ (Cancel/Replace) │                 │
         │                  └──────────────────┘                 │
         │                           │                            │
         v                           v                            v
┌─────────────────────┐      ┌──────────────────┐      ┌──────────────────┐
│ WebSocket Feed      │      │ Risk Manager     │      │ Auto Redeem      │
│ (Orderbook/Trades)  │      │ (Validations)    │      │ (Settlements)    │
└─────────────────────┘      └──────────────────┘      └──────────────────┘

Key Modules

• src/config.py – Pydantic settings for all bot parameters (exposure, spreads, timing, etc.)
• src/polymarket/rest_client.py – REST API client for market data, orders, balances
• src/polymarket/websocket_client.py – WebSocket client for real-time orderbook/trade feeds
• src/polymarket/order_signer.py – Ethereum order signing for authenticated requests
• src/inventory/inventory_manager.py – Inventory tracking and balanced exposure management
• src/market_maker/quote_engine.py – Quote generation with spread calculation and sizing
• src/execution/order_executor.py – Order placement, cancellation, and batching
• src/risk/risk_manager.py – Pre-trade validations and risk checks
• src/services/auto_redeem.py – Automatic position redemption for settled markets
• src/main.py – Main orchestrator for market-making loop and lifecycle

Getting Started

1. Requirements

• Python 3.11+
• Ethereum private key with funds on Polygon network
• Polygon RPC endpoint (public or private)
• Polymarket account with sufficient balance for trading
• Understanding of market-making risks and Polymarket mechanics

2. Installation

git clone https://github.com/your-org/polymarket-market-maker-bot.git
cd polymarket-market-maker-bot
python -m venv .venv
source .venv/bin/activate  # Windows: .venv\Scripts\activate
pip install -r requirements.txt

3. Configuration

Create a .env file:

ENVIRONMENT=production
LOG_LEVEL=INFO

# Polymarket API
POLYMARKET_API_URL=https://clob.polymarket.com
POLYMARKET_WS_URL=wss://clob-ws.polymarket.com

# Authentication (REQUIRED)
PRIVATE_KEY=0x...
PUBLIC_ADDRESS=0x...

# Market Configuration
MARKET_ID=0x...

# Market Discovery
MARKET_DISCOVERY_ENABLED=true
DISCOVERY_WINDOW_MINUTES=15

# Quoting Parameters
DEFAULT_SIZE=100.0
MIN_SPREAD_BPS=10
QUOTE_STEP_BPS=5
OVERSIZE_THRESHOLD=1.5

# Inventory Management
MAX_EXPOSURE_USD=10000.0
MIN_EXPOSURE_USD=-10000.0
TARGET_INVENTORY_BALANCE=0.0
INVENTORY_SKEW_LIMIT=0.3

# Cancel/Replace Logic
CANCEL_REPLACE_INTERVAL_MS=500
TAKER_DELAY_MS=500
BATCH_CANCELLATIONS=true

# Risk Management
MAX_POSITION_SIZE_USD=5000.0
STOP_LOSS_PCT=10.0

# Auto-Redeem
AUTO_REDEEM_ENABLED=true
REDEEM_THRESHOLD_USD=1.0

# Gas Optimization
GAS_BATCHING_ENABLED=true
GAS_PRICE_GWEI=20.0

# Performance Tuning
QUOTE_REFRESH_RATE_MS=1000
ORDER_LIFETIME_MS=3000

# Metrics and Logging
METRICS_HOST=0.0.0.0
METRICS_PORT=9305

# Polygon RPC
RPC_URL=https://polygon-rpc.com

4. Run the Bot

python -m src.main

The bot will:

• Discover and connect to the specified Polymarket market
• Establish WebSocket connection for real-time orderbook updates
• Start the cancel/replace cycle with optimized quote placement
• Monitor inventory and adjust quotes for balanced exposure
• Execute auto-redeem for settled positions
• Log all operations and expose Prometheus metrics

5. Docker Deployment

docker compose up --build -d

View logs:

docker compose logs -f market-maker-bot

Parameter Tuning Guide

Inventory Balance

• MAX_EXPOSURE_USD / MIN_EXPOSURE_USD: Set based on your capital. Smaller values = tighter control.
• INVENTORY_SKEW_LIMIT: 0.3 = 30% max skew. Lower = more balanced but fewer opportunities.
• TARGET_INVENTORY_BALANCE: 0.0 for neutral, positive for bullish bias, negative for bearish.

Spread Farming

• MIN_SPREAD_BPS: Minimum spread to quote (10 bps = 0.1%). Lower = more quotes but tighter spreads.
• QUOTE_STEP_BPS: Stepping between price levels (5 bps = 0.05%).
• DEFAULT_SIZE: Base order size in USD. Adjust based on market depth.

Cancel/Replace Timing

• CANCEL_REPLACE_INTERVAL_MS: 500ms matches taker delay. Faster = more responsive but more API calls.
• QUOTE_REFRESH_RATE_MS: 1000ms for smooth quote updates. Lower = faster refresh but higher gas costs.
• ORDER_LIFETIME_MS: 3000ms before canceling stale orders. Adjust based on market conditions.

Performance Optimization

• BATCH_CANCELLATIONS: true to group cancel requests and reduce gas costs.
• GAS_BATCHING_ENABLED: true to batch on-chain operations.
• AUTO_REDEEM_ENABLED: true to automatically redeem settled positions.

Monitoring & Observability

Prometheus Metrics

Access metrics at: http://localhost:9305/metrics

Key metrics:

• pm_mm_orders_placed_total – Total orders placed by side and outcome
• pm_mm_orders_filled_total – Total orders filled (passive fills)
• pm_mm_inventory – Current YES/NO inventory positions
• pm_mm_exposure_usd – Net exposure in USD
• pm_mm_spread_bps – Current spread in basis points
• pm_mm_profit_usd – Cumulative profit in USD
• pm_mm_quote_latency_ms – Quote generation and placement latency

Structured Logging

All events logged as JSON:

• Order placement and cancellation events
• Inventory updates and rebalancing
• Risk check failures
• WebSocket connection status
• Auto-redeem operations

Example log:

{
  "event": "quote_placed",
  "outcome": "YES",
  "side": "BUY",
  "price": "0.65",
  "size": "100.0",
  "order_id": "0x...",
  "timestamp": "2024-01-01T12:00:00Z"
}

Performance Benchmarks

Expected performance characteristics:

• Quote refresh latency: < 100ms
• Cancel/replace cycle: 500-1000ms
• WebSocket latency: < 50ms
• Fill rate: 60-80% passive (maker) fills
• Inventory skew: Maintained below 30%
• Gas efficiency: 30-50% reduction via batching

SEO: Who Is This Bot For?

This project is designed for people searching for:

• Polymarket market maker bot
• Polymarket trading bot
• Polymarket copy trading bot
• CLOB market making
• Polymarket automated trading
• Prediction market bot
• Polymarket liquidity provider

Perfect for:

• Professional market makers seeking to provide liquidity on Polymarket
• Traders looking to automate spread capture and inventory management
• Quantitative traders who want optimized cancel/replace cycles
• DeFi enthusiasts interested in prediction market market-making

Risk Management Best Practices

1. Start Small: Begin with low DEFAULT_SIZE and MAX_EXPOSURE_USD values
2. Monitor Inventory: Watch inventory skew and adjust limits as needed
3. Set Exposure Limits: Use conservative exposure limits to prevent runaway positions
4. Test on Testnet: Test thoroughly before deploying with real funds
5. Monitor Gas Costs: Gas batching helps, but monitor costs during high network activity
6. Review Logs: Regularly review logs for risk check failures and edge cases

Common Issues & Troubleshooting

Orders Not Filling

• Check spread: Increase MIN_SPREAD_BPS if spreads are too tight
• Verify orderbook: Ensure WebSocket connection is active
• Review queue position: Orders may be too far from best bid/ask

High Inventory Skew

• Reduce exposure limits: Lower MAX_EXPOSURE_USD / MIN_EXPOSURE_USD
• Adjust quote sizing: Bot automatically reduces sizes when skewed
• Enable rebalancing: Check inventory skew limits are configured

Excessive Gas Costs

• Enable batching: Set BATCH_CANCELLATIONS=true and GAS_BATCHING_ENABLED=true
• Reduce refresh rate: Increase QUOTE_REFRESH_RATE_MS to fewer updates
• Monitor network: Use private RPC during high gas periods

WebSocket Disconnections

• Automatic reconnection: Bot automatically reconnects on disconnect
• Check network: Ensure stable network connection
• Review logs: Check for connection errors in logs

Future Enhancements

• Multi-market support: Quote on multiple markets simultaneously
• Advanced strategies: Dynamic spread adjustment based on volatility
• ML-based sizing: Machine learning for optimal order sizing
• Portfolio-level risk: Cross-market exposure limits
• Copy trading: Replicate successful market maker strategies

License

Use at your own risk. Market-making involves capital risk and requires understanding of prediction markets.
Ensure compliance with local regulations and Polymarket terms of service before using in production.

Safety & Compliance

• This bot executes real trades on Polymarket. Test thoroughly before deploying with real funds.
• Market-making involves inventory risk. Monitor exposure and inventory skew continuously.
• Gas costs can be significant during high network activity. Monitor and optimize accordingly.
• Review Polymarket's terms of service and ensure compliance with automated trading policies.
• Maintain audit logs and monitor all operations for compliance purposes.