Betting Strategies

Optimize bet sizing with Kelly criterion and other strategies to maximize long-term returns

Overview

Betting strategies determine how much capital to risk on each prediction. The framework provides several pre-built strategies based on the Kelly criterion and other risk management approaches.

Poor bet sizing can lead to ruin even with accurate predictions. The Kelly criterion helps you bet optimally based on your edge and bankroll.

Available Strategies

The prediction-market-agent-tooling library provides these betting strategies:

SimpleBinaryKellyBettingStrategy

Basic Kelly betting for binary markets

FullBinaryKellyBettingStrategy

Advanced Kelly with price impact consideration

SimpleCategoricalKellyBettingStrategy

Kelly betting for categorical markets

MaxAccuracyWithKellyScaledBetsStrategy

Optimizes for prediction accuracy

CategoricalMaxAccuracyBettingStrategy

Accuracy-focused for categorical markets

MaxExpectedValueBettingStrategy

Maximizes expected value

The Kelly Criterion

The Kelly criterion is a formula for optimal bet sizing that maximizes long-term capital growth:

Kelly % = (p * (b + 1) - 1) / b

Where:
p = probability of winning (your prediction)
b = odds received on the bet (net odds)

Why Kelly? It mathematically guarantees optimal long-term growth while minimizing risk of ruin. Betting more than Kelly is aggressive, betting less is conservative.

Implementing Betting Strategies

Basic Setup

Override the get_betting_strategy() method in your agent:

from prediction_market_agent_tooling.deploy.agent import DeployableTraderAgent
from prediction_market_agent_tooling.deploy.betting_strategy import (
    BettingStrategy,
    SimpleBinaryKellyBettingStrategy,
)
from prediction_market_agent_tooling.gtypes import USD
from prediction_market_agent_tooling.markets.agent_market import AgentMarket

class MyAgent(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        return SimpleBinaryKellyBettingStrategy(
            max_position_amount=USD(5.0),
        )

SimpleBinaryKellyBettingStrategy

The simplest Kelly-based strategy for binary markets:

Basic Usage

from prediction_market_agent.agents.utils import get_maximum_possible_bet_amount

class Berlin2OpenaiSearchAgentHigh(DeployableTraderAgent):
    bet_on_n_markets_per_run = 2

    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        return SimpleBinaryKellyBettingStrategy(
            max_position_amount=get_maximum_possible_bet_amount(
                min_=USD(0.1),
                max_=USD(3.3),
                trading_balance=market.get_trade_balance(self.api_keys),
            ),
        )

max_position_amount · USD · required

Maximum amount to bet on a single position

FullBinaryKellyBettingStrategy

Advanced Kelly strategy that accounts for price impact (slippage):

from prediction_market_agent_tooling.deploy.betting_strategy import (
    FullBinaryKellyBettingStrategy,
)
from prediction_market_agent_tooling.markets.omen.omen import OmenAgentMarket

class GPTRAgent(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        return (
            FullBinaryKellyBettingStrategy(
                max_position_amount=get_maximum_possible_bet_amount(
                    min_=USD(0.1),
                    max_=USD(8),
                    trading_balance=market.get_trade_balance(self.api_keys),
                ),
                max_price_impact=0.57,
            )
            if isinstance(market, OmenAgentMarket)
            else super().get_betting_strategy(market)
        )

max_position_amount · USD · required

Maximum amount to bet on a single position

max_price_impact · float · default: "0.1"

Maximum acceptable price impact (slippage) as a fraction.

• 0.1 = 10% price impact
• 0.57 = 57% price impact (very aggressive)
• Higher values allow larger bets but worse prices

Use max_price_impact carefully. On low-liquidity markets, large bets can significantly move prices against you.

SimpleCategoricalKellyBettingStrategy

For markets with more than two outcomes:

from prediction_market_agent_tooling.deploy.betting_strategy import (
    SimpleCategoricalKellyBettingStrategy,
)

class Berlin1PolySentAgent(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        return SimpleCategoricalKellyBettingStrategy(
            max_position_amount=get_maximum_possible_bet_amount(
                min_=USD(0.1),
                max_=USD(2.05),
                trading_balance=market.get_trade_balance(self.api_keys),
            ),
            allow_multiple_bets=False,    # Only bet on one outcome
            allow_shorting=False,          # Don't short outcomes
            multicategorical=False,        # Single-outcome betting
        )

allow_multiple_bets · bool · default: "True"

Allow betting on multiple outcomes in the same market

allow_shorting · bool · default: "False"

Allow betting against outcomes (shorting)

multicategorical · bool · default: "False"

Enable multi-categorical betting mode

MaxAccuracyWithKellyScaledBetsStrategy

Optimizes for accuracy while using Kelly scaling:

from prediction_market_agent_tooling.deploy.betting_strategy import (
    MaxAccuracyWithKellyScaledBetsStrategy,
)

class Berlin2OpenaiSearchAgentVariable(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        return MaxAccuracyWithKellyScaledBetsStrategy(
            max_position_amount=get_maximum_possible_bet_amount(
                min_=USD(1),
                max_=USD(6),
                trading_balance=market.get_trade_balance(self.api_keys),
            ),
        )

This strategy is ideal when you care more about prediction accuracy than maximizing returns. Good for tournaments and reputation building.

CategoricalMaxAccuracyBettingStrategy

Minimalist strategy focusing on accuracy:

from prediction_market_agent_tooling.deploy.betting_strategy import (
    CategoricalMaxAccuracyBettingStrategy,
)

class SkewAgent(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        # Divide bankroll across many small bets
        max_position_amount = max(
            USD(0.01), 
            market.get_trade_balance(self.api_keys) / 100
        )
        return CategoricalMaxAccuracyBettingStrategy(
            max_position_amount=max_position_amount,
        )

Dynamic Bet Sizing

Adjust bet sizes based on market conditions:

from prediction_market_agent.agents.utils import get_maximum_possible_bet_amount

def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
    trading_balance = market.get_trade_balance(self.api_keys)
    
    # Scale bet size with confidence and liquidity
    if market.total_liquidity > 1000:
        max_bet = USD(10.0)
    elif market.total_liquidity > 100:
        max_bet = USD(5.0)
    else:
        max_bet = USD(1.0)
    
    return FullBinaryKellyBettingStrategy(
        max_position_amount=get_maximum_possible_bet_amount(
            min_=USD(0.1),
            max_=max_bet,
            trading_balance=trading_balance,
        ),
        max_price_impact=0.5,
    )

The get_maximum_possible_bet_amount Helper

This utility function manages bet sizing within safe bounds:

from prediction_market_agent.agents.utils import get_maximum_possible_bet_amount

max_amount = get_maximum_possible_bet_amount(
    min_=USD(0.1),      # Minimum bet size
    max_=USD(5.0),      # Maximum bet size
    trading_balance=market.get_trade_balance(self.api_keys),
)

How it works:

1. Uses 95% of trading balance (keeps 5% for fees)
2. Ensures bet is at least min_ amount
3. Caps bet at max_ amount
4. Returns the value in between based on available balance

Risk Management Best Practices

Conservative: Fractional Kelly

Bet a fraction of Kelly to reduce variance:

# Bet 50% of Kelly recommendation
return SimpleBinaryKellyBettingStrategy(
    max_position_amount=USD(5.0) * 0.5,
)

When to use:

• You’re uncertain about your edge
• You want smoother equity curves
• You’re testing a new agent

Balanced: Full Kelly

Bet the full Kelly amount:

return SimpleBinaryKellyBettingStrategy(
    max_position_amount=USD(5.0),
)

When to use:

• You’re confident in your predictions
• You want optimal long-term growth
• You can handle volatility

Aggressive: Kelly with Price Impact

Accept higher slippage for larger positions:

return FullBinaryKellyBettingStrategy(
    max_position_amount=USD(10.0),
    max_price_impact=0.7,  # Accept 70% slippage
)

When to use:

• High-liquidity markets
• Strong conviction trades
• When opportunity cost is high

Ultra-Conservative: Fixed Small Bets

Ignore Kelly and bet fixed amounts:

return CategoricalMaxAccuracyBettingStrategy(
    max_position_amount=USD(0.01),
)

When to use:

• Learning and experimentation
• Very uncertain predictions
• Volume-based strategies (many small bets)

No Betting Strategy (Tiny Bets)

If you don’t override get_betting_strategy(), the base class uses a minimal betting strategy:

# Default behavior - very small bets
class MyAgent(DeployableTraderAgent):
    pass  # No betting strategy override
    
# This will place tiny bets suitable only for testing

The default strategy bets very small amounts. Always implement a proper betting strategy for production agents.

Example: Adaptive Strategy

Combine multiple factors for sophisticated bet sizing:

class AdaptiveAgent(DeployableTraderAgent):
    def get_betting_strategy(self, market: AgentMarket) -> BettingStrategy:
        balance = market.get_trade_balance(self.api_keys)
        
        # Factor 1: Market liquidity
        if market.total_liquidity < 100:
            max_bet = USD(1.0)
            max_impact = 0.3
        elif market.total_liquidity < 1000:
            max_bet = USD(5.0)
            max_impact = 0.5
        else:
            max_bet = USD(10.0)
            max_impact = 0.7
        
        # Factor 2: Time until close
        time_until_close = market.close_time - utcnow()
        if time_until_close < timedelta(hours=24):
            max_bet *= 0.5  # Reduce bet size for markets closing soon
        
        # Factor 3: Current price (avoid betting at extremes)
        if market.p_yes > 0.95 or market.p_yes < 0.05:
            max_bet *= 0.5
        
        return FullBinaryKellyBettingStrategy(
            max_position_amount=get_maximum_possible_bet_amount(
                min_=USD(0.1),
                max_=max_bet,
                trading_balance=balance,
            ),
            max_price_impact=max_impact,
        )

Testing Betting Strategies

1. Start with Manifold

   Test on Manifold Markets (play money) first:

   python prediction_market_agent/run_agent.py your_agent manifold
   
2. Use Conservative Kelly

   Start with 25-50% of Kelly recommendation:

   max_position_amount=USD(2.0)  # Conservative
   
3. Monitor Performance

   Track your Sharpe ratio, max drawdown, and ROI over time.

4. Increase Gradually

   Once proven, increase bet sizes or move to real-money markets.

Advanced: Custom Betting Strategies

Implement your own strategy by extending BettingStrategy:

from prediction_market_agent_tooling.deploy.betting_strategy import BettingStrategy
from prediction_market_agent_tooling.markets.agent_market import AgentMarket
from prediction_market_agent_tooling.markets.data_models import ProbabilisticAnswer

class MyCustomStrategy(BettingStrategy):
    def calculate_bet_amount(
        self,
        answer: ProbabilisticAnswer,
        market: AgentMarket,
    ) -> USD:
        # Your custom logic here
        kelly_pct = (answer.p_yes * 2 - 1)  # Simplified Kelly
        bet = self.max_position_amount * kelly_pct * answer.confidence
        return max(USD(0), bet)

Next Steps

Agent Architecture

Learn how to implement the betting strategy in your agent

Trade Intervals

Control when your agent trades on the same market