The Vig You Don't See: How Fees, Spreads, and Slippage Eat Your Edge

The Edge You Think You Have Isn't the Edge You Get

Every new prediction market trader has the same epiphany at some point: they run the numbers on a trade, calculate their expected value, place the bet, and eventually realize their real returns don't match the spreadsheet.

The money didn't vanish. It got skimmed — a little here, a little there, across every leg of every trade. This is the hidden vig, and if you don't account for it, you're playing a game where the scoreboard lies to you.

The Spread Is a Tax on Impatience

Look at any Polymarket contract. YES is 62¢, NO is 39¢. That penny gap between the bid and ask isn't free — it's the price you pay to trade *now* instead of waiting for someone to hit your order.

If you always take the offer, you're paying the spread on entry. If you sell before resolution, you're paying it again on exit. A 2¢ spread on a 60¢ contract is a 3.3% round-trip cost — before you even find out if you were right.

The fix isn't complicated: post limit orders, not market orders. Yes, you'll miss some fills. You'll also stop bleeding basis points on every trade.

Slippage Is the Spread's Meaner Cousin

Slippage is what happens when the order book can't absorb your size at the price you wanted. You go to buy $2,000 of YES at 62¢, but there's only $400 there. The next $600 is at 63¢. The next $1,000 is at 65¢.

Your blended fill isn't 62¢ — it's closer to 63.8¢. That's another 2.9% of edge gone before the position even sits.

Rules of thumb:

- On thin markets, check depth before you size up. If the top three levels can't cover your bet, you're the liquidity.

- Break large orders into smaller pieces across time. You'll get better average prices and won't tip your hand.

- If a market has $200 total liquidity and you want to bet $500, the market is telling you something. Listen.

Fees Are Small Until They're Not

Kalshi charges trading fees that scale with price (they're highest around 50¢ contracts). Polymarket historically hasn't charged trading fees but takes them on withdrawals and gas. PredictIt famously took 10% of profits and 5% on withdrawals — which is why nobody there was actually profitable.

A 1% fee on a coin-flip contract you're trading with a 3% edge is a third of your edge. Miss this and you're grinding for nothing.

Always calculate your break-even including fees. If your model says 55% and the market says 52%, that 3% edge might be 1.8% after fees and 0.5% after spread. Is that still worth the variance?

The Compounding Problem

Here's where it gets ugly. These costs don't add — they compound against you across a season of trades.

Say you make 500 trades a year with an average round-trip cost of 1.5% (spread + slippage + fees). That's a 7.5% drag on gross P&L annually. If your edge is 4% per trade, you were supposed to make money — but the drag eats most of it before variance even shows up.

The traders who survive aren't the ones with the sharpest models. They're the ones who understand that execution is half the game.

The Playbook

- Bake spread, slippage, and fees into your edge calculation *before* you place the trade. If the trade still looks good, take it.

- Post limit orders whenever the market gives you the option to wait.

- Size to the book, not to your bankroll. Being right doesn't matter if you moved the market against yourself getting in.

- Track your realized edge vs. modeled edge every month. The gap is your true execution cost — and probably bigger than you think.