Capital Lockup, the Cost Nobody Bills You For
Money committed to an event contract earns nothing until settlement. On long-dated markets this cost dominates everything else and it appears on no statement.
Buy a contract at 30 cents and 30 cents is gone until settlement. Sell one at 30 and 70 cents is gone. There is no interest, no yield, no partial release. It simply sits there.
This is the largest cost in event markets and it appears in no fee schedule.
The arithmetic
A three-cent edge on a 50-cent contract is a 6% return on the capital committed. Good, if it settles next week. Over eight months it is roughly 9% annualised, before every other cost.
Subtract the spread, the fees and whatever you could have earned on that money elsewhere, and a genuinely correct three-cent view can be worth nothing at all.
Always express an edge as a return over the actual holding period. A gap in cents is not comparable across horizons, and any table that ranks opportunities by raw cents will rank the worst ones first. How to read a gap table.
Where it bites hardest
Long-dated contracts. The obvious case. Years of committed capital against a few cents. Long-horizon markets.
Selling the tail. Selling a contract at 3 cents commits 97 cents to collect 3. Annualised over months, an unattractive return with a small chance of losing everything. This is precisely why the favourite-longshot bias survives — correcting it is capital-expensive.
Buying near the top. Buying at 95 commits 95 to collect 5, with the same asymmetry in reverse.
Cross-venue pairs. Both legs together consume roughly a dollar per contract pair for the whole life of the contract, to collect a few cents. This is the single biggest reason gaps persist without being an error. Persistent versus temporary gaps.
The settlement tail
Capital is not released when the event happens. It is released when settlement completes, which may involve a proposal, a challenge window, an official certification, or simply a slow publisher. The market lifecycle.
Compute holding periods from entry to release of capital, not from entry to the event. The difference is often weeks.
What follows
Prefer short horizons for anything marginal. The same edge is worth several times more on a contract settling in a week than one settling in a year.
Treat the extremes with suspicion. Prices near the boundaries are capital-inefficient on both sides, which is why they stay mispriced and why the mispricing is not an opportunity.
Count committed capital, not position count. Twenty positions of a dollar each is twenty dollars committed, regardless of what the entry prices were. Selling cheap contracts feels small and is not. Position sizing.
Discount long-dated gaps hard. A ten-cent gap settling in two years is worth less than a one-cent gap settling next week. Any comparison that does not annualise is misleading. Gap size versus liquidity.
Why this explains so much
A great deal of what looks like inefficiency in event markets is a correct market response to this cost. Prices that ought to be corrected are not corrected because correcting them requires capital for longer than the correction is worth.
That is not a market failing. It is a market pricing a real constraint, and understanding it removes most of the mystery about why obvious-looking opportunities sit there unclaimed. Why venues disagree.
Next
Educational content only. Nothing here is financial advice, a solicitation, or an offer to trade. Prediction markets can move against you and a position can lose its entire value. Where this guide describes a difference between venues it describes a theoretical cross-market edge in observed prices, which is not a profit: fees, spreads, capital lockup, transfer time and differing settlement rules all come out of it first.
Keep reading
Risk and Costs · 3 min readHow Fees Eat an EdgeA strategy with a three-cent edge and a four-cent round-trip cost is a losing strategy. Working through where every cost lands and what survives.
Risk and Costs · 3 min readPosition Sizing When You Might Be WrongSizing determines survival more than selection does. The arithmetic of ruin, why fractional approaches exist, and why the book is the real constraint.
Risk and Costs · 3 min readThe Limits of Any Measured EdgeA measured price difference is a measurement. The distance between that and a return is made of costs, capacity, decay and the chance the measurement is wrong.
Prices and Probability · 4 min readWhat Implied Probability Does Not Tell YouA market price is a probability weighted by money, not by knowledge. The difference explains most of the cases where a confident price turns out to be wrong.