Risk Metrics

Beyond raw PnL — metrics that measure how efficiently and safely a trader generates returns.

ROI (Return on Investment)#

ROI = PnL ÷ total cost basis × 100%

ROI normalizes profit by the amount of capital deployed. A trader with +$500 PnL from $1,000 invested (50% ROI) is more capital-efficient than one with +$500 from $10,000 invested (5% ROI).

Limitations: ROI can be misleading for low-volume traders — a single $10 trade that doubles shows 100% ROI but isn't statistically significant. The Best ROI leaderboard requires $100+ minimum volume to mitigate this.

Sharpe Ratio#

Sharpe = mean(position returns) ÷ stddev(position returns)

The Sharpe ratio measures risk-adjusted performance. It asks: how much return does the trader earn per unit of volatility? A high Sharpe means consistent returns; a low Sharpe means returns are erratic even if the total is positive.

Interpretation Guide#

< 0 — losing money on average
0 – 0.5 — marginal risk-adjusted returns
0.5 – 1.0 — decent
1.0 – 2.0 — good
> 2.0 — excellent risk-adjusted performance

Limitations: Sharpe assumes normally distributed returns, which prediction markets don't produce (outcomes are binary). Treat it as a useful heuristic, not a precise measure.

Max Drawdown#

The largest peak-to-trough decline in a trader's cumulative PnL curve. If a trader's PnL reached +$1,000 then dropped to +$400 before recovering, their max drawdown is $600.

Reading guide: Smaller max drawdown = more consistent performance. A trader with high PnL but a massive drawdown had a rough patch that could have caused them to quit. The Least Risky leaderboard penalizes large drawdowns.

Win Rate#

Win Rate = profitable positions ÷ total resolved positions × 100%

The percentage of resolved positions that ended in profit. Simple and intuitive, but can be misleading on its own.

A 90% win rate sounds great, but if each win makes $1 and each loss costs $100, the trader is losing money overall. Always consider win rate alongside PnL and average position size.