The TRUMPWIN market on dYdX is a prediction market perpetual where traders can hedge or speculate on the outcome of the 2024 U.S. Presidential Election. Specifically, the market allows you to go long if you believe Donald J. Trump will win or go short (essentially betting against Trump and for Kamala Harris) if you believe he will lose.

In this primer, we explain the mechanics of this market, strategies you can use and protocol features you should bear in mind—whether you’re speculating for profit or hedging existing positions.

What Is TRUMPWIN on dYdX?

• Market Mechanism: The underlying TRUMPWIN market is expected to settle at $1.00 if Trump wins the election, and $0.001 if he loses. You can trade perpetual contracts on this outcome on dYdX, which means the positions can remain open indefinitely, as long as you maintain sufficient margin.
• Leverage: dYdX allows you to use up to 20x leverage on your positions (note that available leverage on TRUMPWIN is designed to fluctuate based on market conditions, including current open interest, in order to mitigate the risk of liquidation and deleveraging). This means you can amplify your gains (or losses) significantly, based on the amount of collateral you put down. For example, with $1,000 in collateral, you can control a $20,000 position.
• Oracle: This market relies on Polymarket’s data for price feeds, with news agencies like Fox News, NBC, and the Associated Press providing the election results. The 2024 presidential election will take place on November 5.

What leverage is available on TRUMPWIN?

Like other isolated markets on dYdX, available leverage on TRUMPWIN is designed to fluctuate based on market conditions, including current open interest, in order to mitigate the risk of liquidation and deleveraging.

1. Isolated Margin and Leverage

• Isolated Margin means that only the funds you allocate to a specific trade as collateral are at risk. This is ideal for managing risk since you won’t lose more than the collateral assigned to the position.
• Isolated Markets are markets that have segregated collateral pools and insurance funds. Isolated Markets are traded with isolated margin.
• Leverage allows you to increase your exposure to the market by borrowing additional funds. On dYdX isolated markets, you can use up to 20x leverage, meaning for every $1 of your own, you can control up to $20 in position size. Note that available leverage on TRUMPWIN is designed to fluctuate based on market conditions, including current open interest, in order to mitigate the risk of liquidation and deleveraging.
  

2. Initial and Maintenance Margin

• The Initial Margin Fraction (IMF) for this market is 5%, meaning you need 5% of the total trade value in collateral to open a position.
• The Maintenance Margin Fraction (MMF) is 3%, and if your position’s collateral falls below this level due to adverse market movements, you risk liquidation.

3. Liquidity Tiers 

By categorizing markets based on liquidity and token market capitalization, the protocol can dynamically adjust margin requirements in response to changes in open interest and market conditions.

Isolated Markets:

• IMF of 0.05 (5%) with a smaller range of $0.5M to $1M for riskier, isolated markets with more concentrated liquidity risks.

Dynamic Margin Adjustments:

The IMF for each market isn’t static; it adjusts based on the Open Notional in relation to the market’s open interest caps:

Effective IMF Calculation:

• When the Open Notional (open interest multiplied by the oracle price) is below the Lower Cap, the Base IMF applies.
• As the Open Notional grows, a Scaling Factor is applied to increase the IMF.
• The IMF scales linearly between the Lower Cap and Upper Cap, ensuring the margin requirements increase as open interest grows.
• Once the Open Notional hits the Upper Cap, the IMF is 1.0, requiring 100% collateral.

Formula:

• Scaling Factor = ( Open Notional−Lower Cap) / (Upper Cap−Lower Cap)
• IMF Increase = Scaling Factor x (1 - Base IMF)
• Effective IMF = min⁡(Base IMF+max⁡(IMF Increase,0),1.0)

This design helps manage risk dynamically, allowing markets with lower liquidity to require more collateral as trading activity increases, effectively protecting the platform from excessive leverage exposure. The liquidity tiers and caps provide a framework to assess market conditions and adjust margin requirements, ensuring that collateralization stays appropriate even in volatile or less liquid markets.

To calculate the Effective Initial Margin Fraction (IMF) for the TRUMPWIN market, which is categorized as an Isolated Market, we need to apply the formulas provided and take into account the market's specific parameters. Here's a breakdown of the steps:

TRUMP Market Parameters:

• Base IMF = 0.05 (5%)
• Lower Cap = $0.5M
• Upper Cap = $1M
• Open Interest = 790,471 USDC

Step-by-Step Calculation:

1. Scaling Factor = (790,471−500,000) / (1,000,000−500,000) =0.5809
2. IMF Increase = 0.5809 × (1 - 0.05) = 0.5809 × 0.95 = 0.5519
3. Effective IMF = min⁡(0.05+0.5519,1.0) = 0.6019 (60.19%)

We can calculate the current leverage cap based on the updated margin requirement.

Leverage Calculation:

Leverage is the inverse of the margin fraction. Originally, with a Base IMF of 0.05 (5%), traders could use 20x leverage because:

Leverage = 1 / IMF = 1 / 0.05 = 20x

Now that the Effective IMF has increased to 60.19%, the leverage is much lower:

New Leverage = 1 / Effective IMF=1 / 0.6019 ≈ 1.66x

Conclusion:

With the increased margin requirement, the leverage in the TRUMPWIN market is now capped at around 1.66x. This is significantly lower than the original maximum 20x leverage, reflecting the higher risk due to increased open interest and the Isolated Market's tighter margin rules.

Comparing Polymarket and dYdX

Polymarket is a spot market where you can directly buy or sell “Yes” or “No” shares on an election outcome, reflecting the probabilities of those outcomes. It’s straightforward but offers no leverage. While Polymarket opens the door to a whole new way to speculate on real world events, risk exposure is capped. Users can only sell each share for a maximum of $1. While exposure could be huge for users who buy the share at $0.01, it doesn’t create a huge opportunity for people with conviction when a market is saturated. 

dYdX, in contrast, offers perpetual contracts with leverage, margin trading, and funding rates, allowing for more sophisticated strategies like hedging or speculating with higher potential returns (and risks).

There may be differences between prediction markets on Polymarket, prediction markets perpetuals on dYdX, and standard industry polls.

• Polymarket
• Nate Silver
• Kalshi
• dYdX Chain

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https://x.com/ryansadams/status/1846660964105453836?s=46

Potential Trading Strategies

1. Speculating: Going Long on Trump

Let’s say you’re confident that Donald Trump will win the 2024 election. You can go long by buying TRUMPWIN, speculating that the price will increase as the election approaches or that Trump will outright win.  Conversely, if Trump’s likelihood to win decreases your position will drop in value.

2. Speculating: Shorting Trump (Going Long Kamala)

If you believe that Kamala Harris or another candidate will win, you can short the TRUMPWIN market. This is essentially taking a position that profits if Trump loses. You can go short by selling TRUMPWIN shares, which means your position will increase in value if the odds of Trump losing grow higher.  If he ultimately loses, the TRUMPWIN price will settle at $0.001 (reflecting a 100% probability of him losing). 

3. Hedging: Long on Polymarket or Kalshi, Short on dYdX for Delta-Neutral position with Funding Rate Harvesting

If you’re already holding Trump “Yes” shares on Polymarket or a similar position on a different platform such as Kalshi and are concerned about potential losses, you can hedge your existing position by opening a new short position on dYdX and using a delta-neutral strategy. If you hold a long position on Polymarket and want to mitigate your risk, you can open a short position on dYdX.

Funding Rate Harvesting

In perpetual contracts, funding rates help keep the contract prices aligned with the spot price of the underlying asset (the price of Trump winning according to the Polymarket oracle, in this case). If the funding rate is positive, longs pay shorts, and if negative, shorts pay longs. This means that depending on your position and the funding rate, you could earn or owe periodic payments while holding your position. In crypto markets, funding rates have historically been positive (i.e., longs usually pay shorts), but this is not guaranteed to be the case at all times. 

You can benefit from funding rate differentials by maintaining these positions if the funding rate is favorable (longs pay shorts) for shorting on dYdX. This allows you to earn passive income while remaining generally neutral to market movements.

Risk Management with TP & SL

In trading, risk management strategies like Take Profit and Stop Loss are essential to protect your capital and lock in profits. These tools help you manage the upside and downside risks of your trades.

Take Profit Strategy

A Take Profit (TP) order is designed to automatically close your position when it reaches a target price, locking in profits before the market can reverse. 

Stop Loss Strategy

A Stop Loss (SL) order is designed to close your position if the price falls to a predefined level, minimizing your losses, and helping prevent a liquidation event where you might lose your entire collateral.

By using Take Profit and Stop Loss strategies, you can maximize your gains while controlling your downside risk in a highly leveraged environment. Please note that TP and SL orders rely on existing liquidity and may not always be perfectly effective if there isn’t sufficient liquidity in the relevant markets. 

Settlement & Loss Mechanisms

Although their price fluctuates over time and traders can enter and exit positions at different prices, prediction markets ultimately offer binary outcomes where the final price settles at either 0 or 1. 

These markets can experience rapid price changes due to news events, potentially leading to complex settlement scenarios. Given that the amount of capital invested on either side is generally not equal, and the amount of leverage can be different on each side, the possibility exists that there will not be enough money to fully pay out a leveraged bet on one side. This possibility is potentially even more acute in the TRUMPWIN market, where new developments on election day could dramatically impact the likelihood of Trump winning and quickly change the position value of traders. 

As such, it is possible that, if you have open positions on the TRUMPWIN market on dYdX, your account could be de-levered against an account that is underwater. In other words, your position may be forcefully closed or reduced prior to the event being final-settled, resulting in losses or diminished profits.  For more information about how liquidations and contract loss mechanisms, including deleveraging and the insurance fund, work on dYdX Chain, see here. It is important that traders understand the unique risks associated to holding open positions on prediction markets (and prediction market perpetuals on dYdX), particularly during times closer to the settlement of the prediction market.

5. Key Takeaways and Risks

1. Limited Payouts: Profits can be constrained by available collateral and risk management mechanisms.
2. Leverage Impact: Higher leverage increases potential gains but also magnifies risks of liquidation or deleveraging.
3. Insurance Fund: Provides a buffer against extreme moves but can be depleted.
4. Deleveraging Risk: In extreme scenarios, even winning positions may be reduced to cover system-wide losses (i.e., profits may not just be completely eroded but turned into losses).
5. Isolated Risk: Losses, payouts, and risk management are contained within each specific market.
6. Liquidation Dynamics: The path of price movements matters, not just the final outcome.

Market Trends

The price of the TRUMPWIN market over the next few days, leading up to the election day and potentially beyond in the event of a close outcome, will likely be influenced by several factors:

1. Polls and Public Opinion Data

As more polling data is released and news events unfold, the price will react accordingly. Historically, in prediction markets, prices tend to track the probability implied by polling data. If Trump performs well in polls, particularly in key swing states, the price could rise. Conversely, if Harris gains momentum, the price of this market may decline.

2. Key Events and Debates

In the days leading up to the election, major political events such as media interviews, campaign rallies, and any significant political announcements or scandals will heavily influence market sentiment. If there are negative headlines or poor debate performances, the market could react by pricing in a higher likelihood of him losing.

3. Market Sentiment and Investor Speculation

Prediction markets are driven by speculation. Leading up to election day, traders often try to position themselves in anticipation of how they believe the broader market will move. This speculation can cause volatility, particularly if large traders decide to hedge their positions or make significant moves based on updated information.

4. Day of the Election

On election day itself, prices in the TRUMPWIN market may become extremely volatile, reflecting real-time updates from exit polls, early vote counts, and state-by-state election results. Prediction markets have historically shown dramatic swings during the day as more information becomes available before stabilizing around the likely outcome.  In the event of a close election, the final result may not be known until days or weeks after election night, delaying the settlement of the TRUMPWIN market.

Conclusion

In summary, it is reasonable to expect the TRUMPWIN price to remain highly responsive to polling data and major news events in the coming weeks. As election day approaches, volatility is likely to increase dramatically, and on the day itself, prices will likely fluctuate wildly in response to live election updates. Traders need to be mindful of this volatility, especially if using leverage, as the risk of liquidation and/or deleveraging increases with sudden price movements.

Trading the TRUMPWIN market on dYdX offers high potential returns due to leverage but also carries increased risk, especially if the market moves against you. Using strategies like hedging with Polymarket or speculating with leverage can maximize opportunities, but traders must be cautious of margin calls, liquidation risks, deleveraging mechanisms and funding rate costs.

Beginners should start by familiarizing themselves with the market’s dynamics on Polymarket before venturing into leveraged trading on dYdX. Understanding the tools, fees, and risks associated with each platform is key to successful trading in these politically driven markets.

Please remember that dYdX is a decentralised, permissionless, disintermediated and self-custodial platform where users own and control not just their funds but their decisions, including trading positions and strategies, so please make sure you understand what you are doing before taking on additional risk. 

Resources

• https://dydx.trade/trade/TRUMPWIN-USD
• https://help.dydx.trade/en/articles/221756-prediction-markets-faq
• https://dydx.exchange/blog/prediction-markets
• https://dune.com/lindyhan/2024-us-presidential-election-polymarket‍
• https://polymarket.com/event/presidential-election-winner-2024