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Leveraged Trading

Leveraged trading is PredMart's flagship use case — the ability to amplify your exposure to Polymarket outcomes by borrowing against your existing shares. This page explains what leveraged trading is, how to execute it step by step, how to calculate your effective leverage, the risks involved, and strategies for managing leveraged positions.

What Is Leveraged Trading?​

In traditional finance, leverage means using borrowed capital to increase the size of your investment beyond what your own funds would allow. If you have $1,000 and use 2x leverage, you control a $2,000 position. Your gains and losses are both amplified.

On PredMart, leveraged trading works through a borrow-and-buy loop:

  1. You buy Polymarket shares with your own USDC
  2. You deposit those shares as collateral on PredMart
  3. You borrow USDC against that collateral
  4. You use the borrowed USDC to buy more Polymarket shares
  5. (Optionally) You can repeat steps 2-4 to further increase leverage

The result: you hold more shares than you could have purchased with your original capital alone. If the market moves in your favor, your returns are amplified. If it moves against you, your losses are amplified — and if the price drops far enough, your collateral will be liquidated.

Step-by-Step: How to Leverage Trade​

Step 1: Buy Shares on Polymarket​

Start by purchasing Polymarket outcome shares as you normally would. You can do this directly on polymarket.com or through PredMart's built-in trading interface (which routes orders to Polymarket's CLOB).

Example: You buy 10,000 "Yes" shares of "Will Event X happen?" at $0.60 each, spending $6,000 USDC.

Step 2: Deposit Shares as Collateral on PredMart​

Transfer your newly purchased shares to PredMart's lending pool as collateral.

In our example: You deposit all 10,000 shares into PredMart.

Step 3: Borrow USDC​

With your shares deposited, borrow USDC up to your maximum borrowing power.

In our example:

  • Collateral value: 10,000 × $0.60 = $6,000
  • LTV at $0.60: 60%
  • Maximum borrow: $6,000 × 60% × 99.5% = $3,582
  • You borrow $3,500 USDC (leaving a small buffer)

Step 4: Buy More Shares​

Use the borrowed USDC to purchase additional shares on Polymarket.

In our example: You buy 5,833 more "Yes" shares at $0.60 each with your $3,500 borrowed USDC.

Step 5: (Optional) Repeat for Higher Leverage​

You could deposit the newly purchased 5,833 shares into PredMart as well, borrow more USDC, and buy even more shares. Each loop increases your leverage but also increases your liquidation risk.

In our example (if you do one more loop):

  • Deposit 5,833 additional shares (total collateral: 15,833 shares)
  • New collateral value: 15,833 × $0.60 = $9,500
  • Maximum total borrow at 60% LTV: $5,700
  • You've already borrowed $3,500, so you can borrow an additional $2,200
  • Buy 3,667 more shares at $0.60

Final position after 2 loops:

  • Total shares: 10,000 (collateral) + 5,833 (collateral) + 3,667 (in wallet) = 19,500 shares
  • Total debt: $3,500 + $2,200 = $5,700
  • Your own capital: $6,000
  • Effective leverage: 19,500 × $0.60 / $6,000 = 1.95x

Calculating Effective Leverage​

Your effective leverage is the ratio of your total position value to your own invested capital:

Effective Leverage = Total Position Value / Own Capital

Where:

  • Total Position Value = All shares you hold (in collateral + in wallet) × current price
  • Own Capital = Your initial USDC investment (not including borrowed funds)

Leverage at Different Prices and LTVs​

The maximum leverage achievable depends on the LTV ratio, which depends on the share price. Here's a table showing the maximum theoretical leverage at different price points (assuming infinite borrow loops):

Share PriceLTVMax Theoretical LeveragePractical Max*
$0.2030%1.43x~1.35x
$0.4045%1.82x~1.70x
$0.5052.5%2.11x~1.95x
$0.6060%2.50x~2.30x
$0.7065%2.86x~2.60x
$0.8070%3.33x~3.00x
$0.9072.5%3.64x~3.30x

*Practical max accounts for the borrow haircut, rounding, and the need to maintain a health factor buffer above 1.0.

The formula for maximum theoretical leverage is:

Max Leverage = 1 / (1 - LTV)

For example, at LTV = 60%: Max Leverage = 1 / (1 - 0.60) = 1 / 0.40 = 2.50x

warning

Achieving maximum leverage leaves your position with a health factor very close to 1.0, meaning even a tiny price drop will trigger liquidation. In practice, you should maintain a meaningful buffer above 1.0.

Return Amplification​

Leverage amplifies both gains and losses. Let's trace through a complete example to see the numbers:

Setup​

  • Own capital: $5,000
  • Share price at entry: $0.60
  • Shares purchased with own capital: 8,333
  • All shares deposited as collateral
  • USDC borrowed: $3,000 (borrowing conservatively below max)
  • Additional shares purchased: 5,000
  • Total shares: 13,333
  • Effective leverage: 13,333 × $0.60 / $5,000 = 1.60x

Scenario A: Market Resolves Yes (Share → $1.00)​

Without leverage:

  • 8,333 shares × $1.00 = $8,333
  • Profit: $8,333 - $5,000 = $3,333 (+66.7% return)

With leverage (ignoring interest):

  • 13,333 shares × $1.00 = $13,333
  • Minus debt repayment: $13,333 - $3,000 = $10,333
  • Profit: $10,333 - $5,000 = $5,333 (+106.7% return)

Leverage amplified the return from +66.7% to +106.7% — a 1.6x gain multiplier, matching the leverage ratio.

Scenario B: Price Drops to $0.40 (Market Still Open)​

Without leverage:

  • 8,333 shares × $0.40 = $3,333
  • Unrealized loss: $3,333 - $5,000 = -$1,667 (-33.3%)

With leverage:

  • Collateral: 8,333 shares × $0.40 = $3,333
  • LTV at $0.40: 45%, Liq Threshold: 55%
  • Health factor: (8,333 × $0.40 × 0.55) / $3,000 = 1,833 / 3,000 = 0.61
  • Position would be liquidated well before this point!

This illustrates the key risk: leverage makes you much more sensitive to price drops.

Scenario C: Market Resolves No (Share → $0.00)​

Without leverage:

  • 8,333 shares × $0.00 = $0
  • Loss: -$5,000 (-100%)

With leverage:

  • All collateral is worthless
  • Debt ($3,000) becomes bad debt, absorbed by the pool
  • You also lose the 5,000 shares in your wallet (worth $0)
  • Your total loss: -$5,000 (-100%)

In the total loss scenario, leverage doesn't make your loss worse in dollar terms (you can't lose more than your capital in PredMart's non-recourse system), but it does mean the pool absorbs $3,000 in bad debt.

Risk Management for Leveraged Positions​

Understanding Your Liquidation Price​

The most important number for a leveraged trader is the liquidation price — the share price at which your health factor drops to 1.0 and your position becomes liquidatable.

You can estimate your liquidation price using:

Liquidation Price ≈ Debt / (Collateral Amount × Liquidation Threshold)

Note that this is an approximation because the liquidation threshold itself changes with price (since LTV is dynamic). But it gives you a useful mental model.

Example:

  • Collateral: 10,000 shares
  • Debt: $3,000
  • If we assume liquidation threshold ≈ 65% around the liquidation zone
  • Liquidation price ≈ $3,000 / (10,000 × 0.65) = $0.462

This means if the share price drops below approximately $0.46, your position will be liquidated.

Strategies to Manage Risk​

  1. Don't max out your borrowing power: Leave a meaningful buffer between your actual borrow and your maximum. Borrowing 60-70% of your maximum gives you significant room for price fluctuations.

  2. Monitor your health factor: Check your health factor regularly. PredMart displays it prominently in the UI. A healthy leveraged position should have a health factor of at least 1.3-1.5.

  3. Set mental stop-losses: Decide in advance at what price or health factor level you'll add collateral or repay debt. Don't wait until you're on the edge of liquidation.

  4. Keep reserve USDC available: Hold some USDC in your wallet so you can quickly repay part of your debt if the price drops. Repayment is a direct on-chain transaction — no relay needed — so it's fast.

  5. Diversify across markets: Rather than putting all your leverage into one market, consider spreading across multiple uncorrelated markets. Each position is independent, so a price drop in one doesn't affect others.

  6. Consider the time horizon: Longer positions accrue more interest, reducing your effective returns. If you're going to hold a leveraged position for months, factor in the cumulative interest cost.

The Interest Cost of Leverage​

Don't forget that borrowed USDC accrues interest continuously. Over time, this interest increases your debt and decreases your health factor, even if the price stays flat.

Example:

  • Debt: $3,000
  • Borrow APR: 20%
  • After 30 days: Debt ≈ $3,000 × (1 + 0.20 × 30/365) = $3,049.32
  • After 90 days: Debt ≈ $3,000 × (1 + 0.20 × 90/365) = $3,147.95

This means your health factor slowly decreases over time even with a stable price. For long-duration positions, you should periodically repay accrued interest to maintain your health factor.

When to Use Leverage​

Leveraged trading is most appropriate when:

  1. You have high conviction: You strongly believe a particular outcome will occur and want to maximize your exposure.

  2. The market is liquid: Leveraging in liquid markets ensures you can enter and exit positions without significant slippage, and gives the protocol depth for efficient liquidation if needed.

  3. The time horizon is short: Shorter positions minimize interest costs and reduce the window for adverse price movements.

  4. You can actively monitor: Leverage requires active management. If you can't check your position regularly, conservative leverage (1.2-1.5x) is more appropriate than aggressive leverage (2x+).

  5. You understand the risks: Only use leverage if you fully understand that you could lose your collateral through liquidation. If you're new to DeFi or prediction markets, start with unleveraged positions.

When NOT to Use Leverage​

Avoid leverage when:

  1. You're uncertain about the outcome: Leverage amplifies both gains and losses. If you're only slightly confident, leverage is not your friend.

  2. The market is illiquid: Thin markets have wider spreads, making entry and exit costly. They also have lower borrow caps through PredMart's depth gate.

  3. The resolution is far away: Months of interest accrual can significantly eat into your returns, especially during periods of high utilization.

  4. You can't afford to lose the capital: Never leverage with money you cannot afford to lose. Liquidation means losing your collateral.

Practical Tips​

  • Start small: If you're new to leveraged trading, start with a small position and low leverage (1.2-1.3x) to get comfortable with the mechanics.

  • Use PredMart's interface: The PredMart UI shows your health factor, collateral value, and debt in real time. Use it to monitor your position.

  • Remember the asymmetry: At a share price of $0.60, a "Yes" outcome pays $0.40 per share in profit, while a "No" outcome loses $0.60 per share. Leverage doesn't change this underlying asymmetry — it amplifies it.

  • Account for interest: When calculating your expected returns, subtract the estimated interest cost from your projected gains.

Next Steps​