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Trading Risks#
Understanding the risks involved in trading on Seesaw prediction markets.
Risk Overview#
Market Risk#
What It Is#
The risk that your prediction is wrong and you lose your investment.
Potential Impact#
| Position | Outcome Against You | Maximum Loss |
|---|
| 100 YES @ 6000 bps | DOWN | 60 USDC (100%) |
| 100 NO @ 4000 bps | UP | 40 USDC (100%) |
Mitigation Strategies#
| Strategy | Description |
|---|
| Position Sizing | Only risk what you can afford to lose |
| Diversification | Spread across multiple markets |
| Hedging | Hold both YES and NO positions |
| Exit Early | Sell before resolution to limit losses |
Oracle Risk#
What It Is#
The risk that oracle prices are incorrect, manipulated, or unavailable.
Pyth Oracle Protections#
| Protection | Description |
|---|
| Decentralization | 90+ data providers |
| Confidence Intervals | Price uncertainty bounds |
| On-chain Verification | Verifiable price data |
| Continuous Updates | Sub-second price feeds |
Potential Issues#
| Issue | Protocol Response |
|---|
| Stale Price | Waits for fresh price |
| Invalid Price | Rejects (price <= 0) |
| High Confidence | Optional gating enabled |
| Oracle Down | Force close after 7 days |
Mitigation#
- Protocol uses Sampling Rule A: First valid price at or after boundary
- Prices must have
publish_time >= boundary_time
- Optional confidence ratio constraints
Smart Contract Risk#
What It Is#
The risk of bugs, vulnerabilities, or exploits in the protocol code.
Protocol Safeguards#
| Safeguard | Description |
|---|
| Audited Code | Security review completed |
| Open Source | Publicly verifiable |
| Invariant Checks | Runtime safety assertions |
| Checked Math | No overflow/underflow |
| Idempotent Operations | Safe to retry |
Key Invariants Enforced#
| Invariant | Protection |
|---|
| Solvency | Vault >= max(yes_shares, no_shares) |
| No Naked Shorts | Can only sell owned shares |
| Collateral Coverage | All buys fully backed |
| Snapshot Immutability | Prices cannot be changed |
Mitigation#
- Use official frontends and SDKs
- Verify transaction contents before signing
- Start with small positions
Liquidity Risk#
What It Is#
The risk of not being able to enter or exit positions at desired prices.
Manifestations#
| Scenario | Impact |
|---|
| Wide Spreads | Higher trading costs |
| Low Depth | Price slippage |
| Empty Book | Cannot trade at all |
| Limit Reached | 64 orders per side max |
Mitigation#
| Strategy | Description |
|---|
| Use Limit Orders | Control your execution price |
| Check Depth | Review order book before trading |
| Size Appropriately | Match order size to liquidity |
| Trade Popular Markets | Higher liquidity |
Operational Risk#
What It Is#
The risk of infrastructure failures affecting your trading.
Components#
| Component | Risk |
|---|
| Crank Operators | Delayed settlements |
| Solana Network | Transaction failures |
| RPC Providers | Connection issues |
| Wallet | Key compromise |
Protocol Resilience#
| Risk | Mitigation |
|---|
| Crank Offline | Multiple competing operators |
| Network Congestion | Retry logic, priority fees |
| Single RPC Down | Use multiple providers |
| Wallet Compromise | Your responsibility |
Force Close Protection#
If all else fails, markets force close after 7 days:
- All collateral returned
- No resolution required
- User funds always recoverable
Timing Risk#
What It Is#
The risk related to market timing and boundaries.
Considerations#
| Timing Issue | Impact |
|---|
| Late Entry | Less time for favorable moves |
| Early Exit | Miss potential gains |
| Boundary Issues | Exact second matters for resolution |
Key Timing Points#
| Event | Timing |
|---|
| Market Creation | Up to 24h before t_start |
| Trading Start | When start_price captured (at t_start) |
| Trading End | At t_end (orders cancelled) |
| Resolution | Immediately after end_price |
| Expiry | 7 days after t_end |
Risk Summary Table#
| Risk | Severity | Likelihood | Mitigation |
|---|
| Market Risk | High | High | Position sizing, diversification |
| Oracle Risk | Critical | Low | Pyth decentralization |
| Smart Contract | Critical | Very Low | Audits, open source |
| Liquidity Risk | Medium | Medium | Limit orders, size management |
| Operational Risk | Low | Low | Multiple operators, force close |
| Timing Risk | Low | Medium | Careful trade planning |
Risk Disclosure#
Important: Trading binary prediction markets involves substantial risk of loss. Key points:
- You can lose your entire investment on any single trade
- Past performance does not guarantee future results
- Only trade with funds you can afford to lose
- The protocol has no control over oracle prices or market outcomes
- Smart contracts, while audited, may contain undiscovered vulnerabilities
Best Practices#
- Start Small: Learn with small positions
- Understand the Market: Know what you're predicting
- Set Limits: Define maximum loss per trade
- Stay Informed: Monitor positions actively
- Use Trusted Tools: Official SDK and interfaces
- Secure Your Wallet: Protect private keys
Next Steps#
- Learn Market Making for advanced strategies
- Explore Automation for systematic trading