Order Books vs AMMs in Prediction Markets
Order books and AMMs are two ways to match prediction-market trades. The choice shapes liquidity, spread, and how trade size affects price.
Two main mechanisms match prediction-market trades: central limit order books (CLOBs) and automated market makers (AMMs). Polymarket and Kalshi use order books. Limitless and some onchain markets use AMMs. The same contract can feel very different depending on which is under the hood.
Order books, briefly
Traders post limit orders at specific prices. A buy order at $0.61 sits in the book until someone is willing to sell at $0.61 or less. Order books offer fine-grained price discovery and tight spreads on liquid markets, but go thin or wide on long-tail markets that lack natural counterparties.
AMMs, briefly
An AMM is a pool of liquidity priced by a formula. Buying yes shares from the pool moves the price up; selling moves it down. Trades always execute against the pool, so even markets with no human counterparty have continuous prices.
The tradeoff: large trades move the AMM price meaningfully (slippage). On thin markets, slippage can be larger than an order-book spread would have been.
Which matters for you?
For trades under $500 on top markets, the difference is small. For large positions, an order book on Polymarket or Kalshi usually fills better. For tiny long-tail markets, an AMM may be the only place that gives you a price at all.