Favorite Held Maker (FHM)

Stat-arb strategy — passive maker quotes on overpriced favorites, exit via trailing stop or resolution

What It Is

FHM places passive maker BUY orders on heavily-favored outcomes — markets where the favorite is trading in the $0.70–$0.90 mid-price range. Polymarket favorites are systematically overpriced relative to their true probability. FHM earns the maker spread and exits via trailing stop-loss or holds to $1 payout at resolution.

Unlike CPA, FHM takes a mild directional position: you are buying a favorite and betting it continues to be priced above its true resolution probability. The edge comes from mean-reversion when the market corrects, or from the resolution payout when the favorite wins.

The Edge

Historical backtests show 87–94% monthly win rate on FHM positions, uncorrelated with CPA fills. The strategy performs best on liquid markets (≥ $50k 24h volume) where there is a clear public favorite trading between $0.70 and $0.90.

FHM and CPA run independently with separate position caps and risk limits. Running both strategies simultaneously is the standard configuration.

Setup

Go to Automation and enable Favorite Held Maker.
Set the favorite band:
- favorite_band_low — minimum mid price to enter (default 0.70)
- favorite_band_high — maximum mid price to enter (default 0.90)
The default 0.70–0.90 band is research-validated. Narrowing to 0.80–0.90 targets stronger favorites at lower entry frequency.
Set max_concurrent_positions — maximum simultaneous FHM positions (default 3). Each position ties up target_size_usd ($5 default) of pUSD.
Configure exit rules (defaults are conservative and suitable for most users — see Exit Rules below).
Confirm your wallet has enough pUSD: max_concurrent_positions × target_size_usd at minimum.
Optionally start in simulation mode to observe behavior before committing capital.
Disable dry-run in Settings to go live.

Exit Rules

FHM monitors each position in real time and exits when the first condition is met:

Trigger	Condition	Action
Take-profit (trailing)	Position has gained ≥ $0.10 above entry (absolute floor), then price drops $0.04 from its peak	Market sell at best bid
Stop-loss	Price drops $0.15 below entry price	Market sell at best bid
Max age	Position held for more than 90 days	Market sell at best bid
Resolution — YES	Market resolves YES	Tokens redeemed on-chain for $1
Resolution — NO	Market resolves NO	Tokens burned automatically (worthless)

Tip

The $0.10 absolute floor prevents the trailing stop from firing on small early moves. The position must first appreciate by $0.10 before the trailing drawdown mechanism activates. All defaults are configurable in Automation & Risk Controls.

Risk Controls

Position cap — max_concurrent_positions (default 3). FHM stops entering new positions when the cap is reached.
Strategy budget — budget_usd (default $300). Hard cap on total FHM exposure across all positions.
Volume filter — Only markets with ≥ $50k 24h volume are considered. Thin markets are excluded.
Resolution horizon — Markets resolving more than 60 days out are skipped by default.
NO resolution — When a position resolves NO, the worthless tokens are burned automatically by the redemption worker. No action required; the position closes as a loss.

Running alongside CPA

FHM and CPA share your wallet balance but have independent position caps, risk limits, and execution paths. Enabling both is the standard setup — they are designed to complement each other.