Five Minutes of Reading Beats Every Hunch: the Pre-Trade Checklist
The pre-trade checklist for prediction markets: what price, volume, spread, and — above all — the resolution criteria tell you before you risk a dollar.
Most beginner prediction-market losses aren’t bad forecasts — they’re unread markets: positions taken on the headline while the fine print pointed elsewhere. Here is the five-minute checklist that reads a market properly, in the order that catches the most mistakes.
1. The resolution criteria — read them twice
The market’s title is marketing; the resolution rules are the contract. “Will X happen by December 31?” hides every question that matters: by whose determination? What counts as “happen”? Which time zone’s midnight? Markets have resolved against the apparent outcome because the specified source reported differently, the deadline fell before the event’s official confirmation, or a term meant something narrower than its headline usage. The canonical beginner disaster is being right about the world and wrong about the contract. If the criteria are ambiguous, that ambiguity is priced in — usually by traders sharper than the headline suggests.
2. Price and its history
The current price is the market’s forecast; the chart is its reasoning. A market at 63% that climbed steadily from 40% tells a different story than one that spiked from 85% on yesterday’s news. Check what moved it: a durable repricing on real information, or a thin-volume wobble? You’re about to bet you know something the price doesn’t — the history shows what it already knows.
3. Volume and open interest
Liquidity is credibility. A price set by millions in matched trades has digested serious disagreement; one set by a few hundred dollars is a bulletin-board opinion. Thin markets carry two costs: the price means less, and you move it when entering and exiting — a round trip through a wide spread can eat several points of edge before the world even weighs in.
4. The spread
The gap between best YES and best NO offers is your immediate toll. A 62/64 market costs you a point on entry against fair value; a 55/70 market is telling you nobody is confident enough to quote tightly — which is itself information, usually about resolution ambiguity or a pending announcement. Never market-order into a wide spread; that’s a donation.
5. Time and capital
A 90% market three months from resolution returns ~11% if right — annualize that against tied-up capital and the certainty isn’t as cheap as it looks. Meanwhile the honest sizing rule for beginners: positions small enough that a full loss is a lesson, not an event. The first fifty trades are tuition; the checklist keeps tuition affordable.
Run all five and most bad trades die at step one or three — before costing anything. The market rewards reading; it invoices everything else.