Prediction market platforms like Kalshi and Polymarket settle binary contracts between 0¢ and 100¢ ($1.00 payout). Introducing leverage (margin borrowing) dramatically shifts liquidation distance, capital efficiency, and gap risk. Model your position below.
| Contract Price | Implied Prob | Position Value | Net Equity | Return on Margin | Status |
|---|
Unlike stocks or perpetual futures that move linearly without hard bounds, binary contracts strictly terminate at either $1.00 (100%) or $0.00 (0%). A contract bought at 80¢ has only 20¢ upside but 80¢ downside. Applying 4x leverage on an 80¢ contract requires so much maintenance equity that a tiny 5¢ dip can trigger an immediate forced liquidation!
When regulatory decisions, poll data, or earnings prints break, binary prices jump instantly across price intervals. In low-liquidity books, forced liquidations trigger market sell orders that can execute well below the maintenance margin threshold, potentially triggering deficit protocol halts.
At 5x leverage, you post 20% initial margin ($0.20 per dollar of contract value). As contract value decreases, your equity is eroded dollar-for-dollar against the borrowed principal. Once remaining equity touches the maintenance requirement (e.g. 50% of initial), liquidation safeguards close your position.