Nawaz Haider
313 lines
21 KiB
Markdown
313 lines
21 KiB
Markdown
# Polymarket HFT Market Making System
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_Python High-Frequency Trading Infrastructure for Prediction Markets_
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## Overview
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A high-frequency trading (HFT) market making system built for Polymarket's prediction markets. This system uses real-time orderbook analysis, signal generation, and automated execution to provide liquidity while maintaining profitability through intelligent market making strategies.
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**Key Features:**
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- **Real-time Market Making**: Automated bid-ask spread management with dynamic pricing
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- **Signal-Based Trading**: BPS (Basis Points Spread) threshold monitoring for entry signals
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- **Intelligent Hedging**: Automatic position hedging to manage risk exposure
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- **Performance Optimization**: CPU affinity control, GC management, and async architecture
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- **Risk Management**: Position limits, profit margins, and automated trade execution
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- **WebSocket Integration**: Real-time market data streaming with automatic reconnection
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---
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## System Architecture
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### Core Components
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```
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┌─────────────────────────────────────────────────────────┐
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│ TRADING ENGINE │
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├─────────────────────────────────────────────────────────┤
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│ OrderBook │ Signal Generator │ Risk Manager │
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│ ├─ WebSocket │ ├─ BPS Analysis │ ├─ Position │
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│ ├─ Real-time │ ├─ Threshold │ │ Limits │
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│ │ Updates │ │ Monitoring │ ├─ Profit │
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│ └─ Price Data │ └─ Entry Signals │ │ Margins │
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│ │ │ └─ Exposure │
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├─────────────────────────────────────────────────────────┤
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│ EXECUTION LAYER │
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│ Market Maker │ Hedging System │ Monitoring │
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│ ├─ Order │ ├─ Fill │ ├─ Logging │
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│ │ Management │ │ Detection │ ├─ Performance │
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│ ├─ Spread │ ├─ Automatic │ │ Metrics │
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│ │ Calculation │ │ Hedging │ ├─ Health │
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│ └─ P&L Tracking │ └─ State Mgmt │ │ Checks │
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│ │ │ └─ Alerts │
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└─────────────────────────────────────────────────────────┘
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```
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## Key Components
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### 1. Main Trading Engine ([main.py](main.py))
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The core trading loop that orchestrates all system components:
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### 2. OrderBook Management ([utils/orderbook.py](utils/orderbook.py))
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Real-time market data processing with WebSocket connections:
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- **WebSocket Integration**: Connects to Polymarket's real-time data feed
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- **Signal Generation**: Detects trading opportunities based on BPS thresholds
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- **Market State**: Maintains current bid/ask prices and spread analysis
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### 3. Order Management ([utils/clob_orders.py](utils/clob_orders.py))
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Handles order placement and hedging strategies.
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### 4. Risk Management
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- **Position Limits**: Maximum concurrent trades via `MAX_TRADES` configuration
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- **Profit Margins**: Configurable minimum profit per trade
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- **Trade Tracking**: Real-time position monitoring and P&L calculation
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- **Market Windows**: Time-based trading restrictions
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---
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## Performance Engineering
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### 1. Garbage Collection Management
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```python
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gc.disable() # Eliminates GC pauses during trading
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```
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**Why:** Python's garbage collector can cause trading delays. We disable it during active trading and manually trigger cleanup during quiet periods.
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### 2. CPU Optimization
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```python
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def set_cpu_affinity():
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affinity_cores = [cpu_count - 2, cpu_count - 1] # Use dedicated cores
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process.cpu_affinity(affinity_cores)
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process.nice(psutil.HIGH_PRIORITY_CLASS) # High priority
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```
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**Benefits:**
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- Dedicated CPU cores for trading operations
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- High process priority for consistent performance
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- Reduced interference from other system processes
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### 3. Async Architecture
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**Advantages:**
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- Non-blocking network operations
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- Concurrent order processing
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- Thread-safe state management
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### 4. Efficient Data Processing
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---
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## Trading Strategy
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### Market Making Approach
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The system employs a market making strategy that focuses on:
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1. **Spread Analysis**: Monitors bid-ask spreads and identifies profitable opportunities
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2. **BPS Threshold Trading**: Uses configurable basis point thresholds (default: 50 BPS) to trigger trades
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3. **Automated Hedging**: Places hedge orders automatically to manage risk exposure
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4. **Position Limits**: Enforces maximum trade limits (configurable via `MAX_TRADES`)
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### Signal Generation
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```python
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# BPS-based signal detection
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if current_spread_bps >= TRADING_BPS_THRESHOLD:
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# Generate trading signal
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place_anchor_and_hedge(market_data)
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```
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**Key Parameters:**
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- `TRADING_BPS_THRESHOLD`: Minimum spread required to trigger a trade (50 BPS default)
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- `PROFIT_MARGIN`: Minimum profit margin per trade (2% default)
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- `MAX_TRADES`: Maximum concurrent positions (2 default)
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### Risk Management
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- **Position Sizing**: Controlled position sizes based on available capital
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- **Automatic Hedging**: Every market making trade is automatically hedged
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- **Market Time Windows**: Trades only during active market sessions
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- **Stop-Loss Protection**: Built-in safeguards against adverse moves
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---
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## Monitoring & Logging
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The system provides comprehensive logging and monitoring capabilities:
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### Log Files
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- **[logs/](logs/)**: Trading activity logs
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### Performance Monitoring
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- Real-time orderbook updates
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- Trading signal generation logs
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- P&L tracking and reporting
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- System health monitoring
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### Debug Information
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Enable detailed logging by modifying the logger configuration in [utils/logger.py](utils/logger.py).
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---
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## License & Disclaimer
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**License**: This project is for educational and research purposes only.
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**Important Disclaimers:**
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- This software is provided as-is for educational purposes
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- Trading involves substantial risk of financial loss
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- Users are responsible for compliance with applicable financial regulations
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- Past performance does not guarantee future results
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- The authors are not responsible for any financial losses incurred
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- Use at your own risk and ensure proper testing before live trading
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---
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## Installation & Setup
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### Prerequisites
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```bash
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# System Requirements
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Python 3.11+
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4+ CPU cores recommended
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2GB+ RAM for orderbook processing
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Stable internet connection
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```
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### Installation
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1. **Clone the repository:**
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```bash
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git clone https://github.com/nawaz0x1/py_polymarket_hft_mm
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cd py_polymarket_hft_mm
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```
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2. **Setup:**
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```bash
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# Automated setup (Linux/Unix)
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./setup.sh
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# Manual setup
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pip install -r requirements.txt
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```
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3. **Configuration:**
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Create your configuration by editing [config.py](config.py):
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```python
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# Trading Parameters
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TRADING_BPS_THRESHOLD = 50 # BPS threshold for trade signals
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PROFIT_MARGIN = 0.02 # Minimum profit margin (2%)
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MAX_TRADES = 2 # Maximum concurrent trades
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PLACE_OPPOSITE_ORDER = True # Enable automatic hedging
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# Performance Settings
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REQUEST_TIMEOUT = 5 # API request timeout
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MARKET_SESSION_SECONDS = 900 # Market session duration
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```
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4. **API Setup:**
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- Set up your Polymarket CLOB API credentials
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- Ensure proper wallet configuration for order signing
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- Test connection with small trades first
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### Quick Start
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```bash
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# Launch the trading system
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./run.sh
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# Or run directly with Python
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sudo env "PATH=$PATH" python main.py
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```
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---
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## Contact & Support
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**Author**: Shah Nawaz Haider
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**GitHub**: [@nawaz0x1](https://github.com/nawaz0x1)
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**X (Twitter)**: [@nawaz0x1](https://x.com/nawaz0x1)
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**LinkedIn**: [Shah Nawaz Haider](https://www.linkedin.com/in/nawazhaider/)
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---
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### Support Development
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If you find this project useful, consider supporting further development:
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**Crypto Donations:**
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- **Ethereum (ETH):** `0x89ae2f064cf2cb06a5e66a8e9ea6b653dcb93cfa`
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- **Solana (SOL):** `2V4g71bG6dJyqv4REZeZSCtiF4pQauDvRiLy8MDNjWNv`
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Your support helps maintain and improve the trading algorithms!
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---
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## ⚠️ DISCLAIMER
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**FOR EDUCATIONAL AND RESEARCH PURPOSES ONLY**
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This software is provided strictly for educational, research, and demonstration purposes. By using this code, you acknowledge and agree to the following:
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### Financial Risk Warning
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- **HIGH RISK**: Trading and market making involve substantial risk of financial loss
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- **NO GUARANTEES**: Past performance does not guarantee future results
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- **CAPITAL LOSS**: You may lose some or all of your invested capital
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- **MARKET VOLATILITY**: Prediction markets are highly volatile and unpredictable
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### Legal and Regulatory Compliance
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- **USER RESPONSIBILITY**: You are solely responsible for compliance with all applicable laws and regulations in your jurisdiction
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- **NO LEGAL ADVICE**: This software does not constitute financial, legal, or investment advice
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- **REGULATORY COMPLIANCE**: Ensure compliance with securities laws, derivatives regulations, and financial services requirements
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- **JURISDICTION SPECIFIC**: Trading regulations vary by country and may prohibit certain activities
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### Software Limitations
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- **NO WARRANTY**: This software is provided "AS IS" without any warranties, express or implied
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- **BUGS AND ERRORS**: The software may contain bugs, errors, or security vulnerabilities
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- **NO SUPPORT**: No guarantee of maintenance, updates, or technical support
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- **THIRD-PARTY DEPENDENCIES**: Relies on external APIs and services that may change or become unavailable
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### Liability Disclaimer
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- **NO LIABILITY**: The authors and contributors are not liable for any financial losses, damages, or consequences
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- **USER ASSUMES RISK**: You use this software entirely at your own risk
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- **INDEMNIFICATION**: You agree to indemnify and hold harmless the authors from any claims or damages
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### Additional Warnings
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- **TEST THOROUGHLY**: Always test extensively with small amounts before any live trading
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- **MONITOR CONSTANTLY**: Automated trading systems require constant monitoring
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- **TECHNICAL KNOWLEDGE**: Requires significant technical knowledge to operate safely
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- **API CHANGES**: External API changes may break functionality without notice
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**By using this software, you acknowledge that you have read, understood, and agree to these terms.**
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