102 lines
3.5 KiB
Markdown
102 lines
3.5 KiB
Markdown
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# Polymarket Fee Model
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## Overview
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Most Polymarket markets are **fee-free**. Dynamic taker fees apply only to
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short-duration crypto markets (5-minute and 15-minute expiry).
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## Fee-Free Markets
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The vast majority of markets on Polymarket -- political, sports, entertainment,
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weather, and long-duration crypto markets -- charge **zero fees** for both makers
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and takers. This makes arbitrage significantly more viable than on traditional
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exchanges.
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## Dynamic Taker Fees (Crypto Short-Duration Only)
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For 5-minute and 15-minute crypto prediction markets, a dynamic taker fee applies:
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```
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feeQuote = baseRate * min(price, 1 - price) * size
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```
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Where:
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- `baseRate` is set per market (typically 0.063 or 6.3%)
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- `price` is the execution price (0 to 1)
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- `size` is the number of shares
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### Effective Fee Rate by Price
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| Price | min(p, 1-p) | Effective Rate (baseRate=0.063) |
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|-------|-------------|-------------------------------|
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| 0.05 | 0.05 | 0.315% (0.063 * 0.05) |
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| 0.10 | 0.10 | 0.630% |
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| 0.20 | 0.20 | 1.260% |
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| 0.30 | 0.30 | 1.890% |
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| 0.40 | 0.40 | 2.520% |
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| 0.50 | 0.50 | 3.150% (maximum) |
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| 0.60 | 0.40 | 2.520% |
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| 0.70 | 0.30 | 1.890% |
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| 0.80 | 0.20 | 1.260% |
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| 0.90 | 0.10 | 0.630% |
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| 0.95 | 0.05 | 0.315% |
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The fee is **parabolic**, peaking at p=0.50 and dropping sharply near the extremes.
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This was explicitly designed to kill latency arbitrage on these fast markets.
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### Fee Calculator
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```python
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def calculate_fee(price: float, size: float, base_rate: float = 0.063) -> dict:
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"""Calculate dynamic taker fee for crypto short-duration markets."""
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fee_rate = base_rate * min(price, 1 - price)
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fee_amount = fee_rate * size
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cost_basis = price * size
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total_cost = cost_basis + fee_amount
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effective_rate = fee_amount / cost_basis if cost_basis > 0 else 0
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return {
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"fee_rate": fee_rate,
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"fee_amount": fee_amount,
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"cost_basis": cost_basis,
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"total_cost": total_cost,
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"effective_rate_pct": effective_rate * 100,
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}
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```
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### Breakeven Analysis for Arbitrage
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For an arbitrage trade buying both YES and NO:
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```python
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def arbitrage_breakeven(yes_price, no_price, base_rate=0.063):
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"""Calculate if arb is profitable after fees on fee-bearing markets."""
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raw_sum = yes_price + no_price
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raw_edge = 1.0 - raw_sum # Positive = underpriced
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yes_fee = base_rate * min(yes_price, 1 - yes_price)
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no_fee = base_rate * min(no_price, 1 - no_price)
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total_fee_rate = yes_fee + no_fee
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net_profit_per_share = raw_edge - total_fee_rate
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return {
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"raw_edge": raw_edge,
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"total_fee_rate": total_fee_rate,
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"net_profit_per_share": net_profit_per_share,
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"profitable": net_profit_per_share > 0,
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}
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```
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## Maker Rebates
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Post-only limit orders (introduced January 2026) receive maker rebates on
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qualifying markets. This creates a structural advantage for market-making
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strategies that provide liquidity.
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## Practical Implications
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1. **Fee-free markets**: Arbitrage edges as small as $0.01 are worth capturing
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2. **Fee-bearing markets**: Need at least 3-6% raw edge at mid-prices to break even
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3. **Extreme prices** (< 0.10 or > 0.90): Fees are minimal even on fee-bearing markets
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4. **Market making**: Maker rebates make spread-capture profitable on thin books
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