[HN Gopher] Making Markets on Kalshi
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       Making Markets on Kalshi
        
       Author : andes314
       Score  : 38 points
       Date   : 2025-02-17 00:26 UTC (22 hours ago)
        
 (HTM) web link (rlafuente.com)
 (TXT) w3m dump (rlafuente.com)
        
       | andes314 wrote:
       | I built a market making algorithm for Kalshi, an event futures
       | exchange. The algorithm dynamically places bids and asks to
       | capture the spread while managing inventory risk. It supports
       | multiple strategies running in parallel, each with its own
       | configuration. The codebase is located at
       | https://github.com/rodlaf/kalshimarketmaker.
        
         | swilliams231 wrote:
         | This is awesome. I tried doing something like this but had to
         | put it on hold due to college classes/exams. Have you had any
         | success with this strategy?
        
           | andes314 wrote:
           | I gave it some cash but in the end, with my risk
           | configuration, it wasn't 'exciting' enough because orders
           | don't really get taken very frequently. I think You'd have to
           | deploy much more cash than I did (> $1000) and trade at least
           | a couple dozen securities to really make it 'fun'.
           | 
           | A major improvement to the software that I didn't get around
           | to was a script to identify which securities offer the best
           | market making opportunities (e.g., maybe by generating a
           | custom YAML file).
        
             | swilliams231 wrote:
             | Did you try using it on the temperature markets? Those seem
             | to get the most consistent trading volume.
             | 
             | Also, LMK if you want some of the data, I collected I can
             | share this via an S3 bucket. It's from the chicago max temp
             | market. I ended up scrapping my strategy (not market
             | making), but don't want the data to go to waste.
        
       | zietzm wrote:
       | Nice work! Code is super readable. Are you planning to keep
       | improving it, or was this more an experiment to learn?
        
         | andes314 wrote:
         | This was an experiment to both 1) learn how market making works
         | and 2) figure out what is so hard about it. My main insight
         | from this process is that order management--making sure only
         | the orders you want are placed, and fast, is a pretty complex
         | software problem. The algorithm itself seems to be one of the
         | easier things to implement.
        
           | mgaunard wrote:
           | I find that the best way to solve that is to make the
           | strategy define its desired state, and then you have another
           | component that diffs the current and desired states to
           | identify the necessary transactions to send out as well as
           | their priority based on the nature of the diff, then finally
           | go to a scheduler.
        
       | maest wrote:
       | How big are the kalshi markets anyway?
        
         | andes314 wrote:
         | Not as big as other markets, but growing fast!
        
         | boshalfoshal wrote:
         | The markets that are basically derivatives of financial
         | products (qqq/spy closing price, oil, rates, etc) have pretty
         | decently sized volume but are likely pretty efficiently priced
         | and most likely have institutions market making on them.
         | 
         | The more niche markets are orders of magnitude smaller and are
         | probably less efficient. However, market making on some low
         | volume, niche market probably won't pay much.
        
           | DiscourseFan wrote:
           | One of the exceptions to that was of course the recent
           | election, but events with such high volumes on that scale of
           | unpredictability are quite rare.
        
         | ammario wrote:
         | Daily trading volume is about ~$5m
        
       | ammario wrote:
       | Cool to see. I'm currently #1 on the Kalshi volume leaderboard
       | (https://kalshi.com/social/leaderboard) with a proprietary market
       | making algorithm.
       | 
       | There is plenty of money to be made on Kalshi, but I had to
       | rethink the math from the ground up as most of the literature
       | describes highly liquid, somewhat stable markets.
       | 
       | One small change you could make to your algorithm is to calculate
       | the skews/spreads in log-odds space. A change in price from 50c
       | to 49c represents a very small delta in expected return whereas
       | 2c to 1c is a doubling. Dealing with probability contracts in
       | log-odds controls for this effect.
        
       | vagab0nd wrote:
       | Arbitraging is so 2024. The future is prediction market
       | manipulation/crowd funding. Imagine shorting "asteroid hitting
       | earth" and using the proceeds to divert the asteroid.
        
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