Polymarket Bot Glossary
Key terms and definitions for Polymarket bot development and automated prediction market trading.
A
Adverse Selection
A phenomenon where informed traders consistently trade against your quotes, causing systematic losses. In market making, adverse selection occurs when someone with better information about the true probability buys from your ask or sells to your bid. Detecting and mitigating adverse selection is a core challenge for market making bots.
API (Application Programming Interface)
The programmatic interface that allows bots to interact with Polymarket. The Polymarket API provides REST endpoints for placing orders and fetching data, plus WebSocket feeds for real-time streaming. All bot development starts with understanding the API. See our API tutorial for a complete walkthrough.
Arbitrage
The practice of exploiting price discrepancies between related markets or outcomes to lock in a guaranteed profit. On Polymarket, arbitrage opportunities arise when multi-outcome market prices sum to more or less than 100%, or when related markets imply contradictory probabilities. See our arbitrage guide.
B
Backtesting
The process of testing a trading strategy against historical market data to evaluate how it would have performed. Essential before deploying any bot with real capital. Requires historical price data, a simulation engine, and careful attention to biases like look-ahead bias and survivorship bias. See our backtesting guide.
Bid
An order to buy at a specified price. The best bid is the highest price any buyer is currently willing to pay. In market making, your bid is the price at which you offer to buy outcome tokens from sellers.
C
Circuit Breaker
An automated safety mechanism that halts all trading when predefined thresholds are exceeded. Common triggers include daily loss limits, consecutive losing trades, high API error rates, or excessive inventory accumulation. Circuit breakers prevent a malfunctioning bot from draining your account. See our safety guide.
CLOB (Central Limit Order Book)
The core matching engine of Polymarket. The CLOB maintains an order book of buy and sell orders for each market outcome, matching them based on price-time priority. All bot trading on Polymarket goes through the CLOB API. Unlike AMM-based DEXes, the CLOB provides traditional order book functionality with limit and market orders.
Copy Trading
A strategy where a bot monitors the trades of selected wallets and automatically replicates them. When the target wallet buys, the bot buys. When they sell, the bot sells. The most accessible form of Polymarket automation because it requires no market analysis — you're leveraging someone else's edge.
D
Drawdown
The peak-to-trough decline in account value during a losing period. Maximum drawdown is the largest such decline over a given time period. A critical risk metric — if your bot's maximum drawdown exceeds your risk tolerance, you need tighter risk controls or a different strategy.
E
EIP-712
An Ethereum Improvement Proposal that defines a standard for signing typed structured data. Polymarket uses EIP-712 signatures for order authentication — your bot signs each order with your private key, proving you authorized the trade without transmitting the key to the API server.
Exponential Backoff
A retry strategy where the wait time between retries doubles after each failure. Used for handling API rate limits: wait 1 second after the first 429 response, 2 seconds after the second, 4 seconds after the third, and so on up to a maximum delay. Prevents overwhelming the API during outages.
F
Fill
When an order is matched and executed against a counter-order on the CLOB. A full fill means the entire order size was executed. A partial fill means only part of the order was matched. Unfilled orders remain on the book until they're filled, canceled, or expire.
G
Gas Fee
The transaction fee paid to validators for processing operations on the Polygon blockchain. Since Polymarket settles on Polygon, each filled order incurs a small gas fee. Polygon gas fees are typically very low (fractions of a cent) compared to Ethereum mainnet.
I
Inventory Risk
The risk that a market maker's accumulated position (inventory) moves against them. As one side of your quotes gets filled more than the other, you build up a directional position. If the market moves against that position, you lose money. Managing inventory through skewed quoting and position limits is the central challenge of market making.
L
Limit Order
An order to buy or sell at a specific price or better. Limit orders provide price certainty but no fill guarantee — the market may never reach your price. Preferred by bots that can wait for favorable prices rather than executing immediately.
M
Market Making
The practice of providing liquidity by continuously quoting both buy and sell prices. Market makers profit from the bid-ask spread but face inventory risk and adverse selection. Requires significant capital and sophisticated risk management. See our market making guide.
Market Order
An order that executes immediately at the best available price. Market orders guarantee execution but not price. In thin markets, large market orders experience significant slippage as they consume multiple price levels of the order book.
Mid-Market Price
The average of the best bid and best ask prices. Represents the market's current consensus value for an outcome. Used as a reference price for many trading strategies and as the basis for P&L calculations.
N
Nonce
A sequential number included in signed transactions to prevent replay attacks. Each order you sign must have a unique nonce. The CLOB client libraries manage nonce generation automatically, but custom implementations must track nonces carefully to avoid rejected orders.
O
Order Book Depth
The total volume of orders at each price level in the CLOB. Deep order books (lots of volume at many price levels) indicate high liquidity and low slippage. Shallow order books mean your trades will have more price impact. Bots should check depth before placing large orders.
Overround
When the sum of all outcome probabilities in a market exceeds 100%. For example, if a three-outcome market has prices of 40%, 35%, and 30% (total 105%), the 5% overround represents a potential arbitrage opportunity. Selling all outcomes locks in a guaranteed profit equal to the overround minus fees.
P
Paper Trading
Running a trading strategy in simulation mode without risking real capital. The bot tracks what it would have done and calculates hypothetical P&L. Essential for validating a strategy between backtesting and live deployment. Run paper trading for at least 2-4 weeks before going live.
Polygon
A Layer 2 scaling solution for Ethereum. Polymarket settles all trades on the Polygon network, which provides fast transaction finality and low gas fees. Your bot's wallet needs MATIC (for gas) and USDC (for trading) on the Polygon network.
R
Rate Limit
A restriction on the number of API requests allowed within a given time period. The Polymarket CLOB API enforces rate limits to prevent abuse. Exceeding the limit returns HTTP 429 responses. Bots must implement rate limiting (proactive throttling) and backoff (reactive handling) to operate within these constraints.
S
Sharpe Ratio
A measure of risk-adjusted return, calculated as the average excess return divided by the standard deviation of returns. A Sharpe ratio above 1.0 indicates decent risk-adjusted performance; above 2.0 is strong. Used to compare strategies that have different risk profiles.
Slippage
The difference between the expected price of a trade and the actual execution price. Slippage occurs because the order book changes between when you decide to trade and when your order is filled. Larger orders and thinner markets experience more slippage. A critical factor in copy trading, where latency between the target's trade and your copy creates inherent slippage.
Spread
The difference between the best bid (highest buy price) and best ask (lowest sell price) in the order book. A tighter spread means lower trading costs for takers. Market makers earn the spread as compensation for providing liquidity. On Polymarket, typical spreads range from 1-5% depending on market liquidity.
T
Token ID
The unique identifier for a specific outcome token in a Polymarket market. Each market has at least two token IDs (YES and NO for binary markets, one per outcome for multi-outcome markets). Your bot uses token IDs to specify which outcome to trade when placing orders via the API.
W
WebSocket
A communication protocol that provides persistent, full-duplex connections between a client and server. Unlike REST APIs where you send a request and get a response, WebSocket connections stay open and stream data continuously. Essential for bots that need real-time price updates, trade feeds, and order status notifications without polling.
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