How exposure is represented, profits are realized, and downside is bounded.
Foremarket models trader exposure explicitly at the outcome level. When a trader buys shares of an outcome, they are not placing a wager in the abstract. They are acquiring a tokenized claim whose terminal value is fully determined at settlement. This makes position accounting deterministic and auditable.
For a given market with outcomes ( O_1, O_2, \dots, O_n ), a trader’s position can be represented as:
Position {
outcome_id: O_i
shares: q_i
entry_price: p_i
}
At settlement, each outcome token redeems to either 1 (if correct) or 0 (if incorrect). Profit and loss is therefore computed mechanically:
PnL = (SettlementValue - EntryPrice) * Shares
Expanded:
PnL = (v_i - p_i) * q_i
Where:
v_i ∈ {0,1} is the settlement value of outcome i
p_i is the average price paid per share
q_i is the number of shares held
This structure has two important properties.
First, downside is capped. A trader can lose at most the amount paid for shares. There is no leverage, margin call, or liquidation cascade by default. This makes Foremarket markets safe to participate in even when volatility is high or information is incomplete.
Second, upside is linear and transparent. There are no hidden payoff curves or nonlinear settlement rules. One share always redeems to one unit if correct.
Net Exposure and Multi-Outcome Positions
Traders may hold positions in multiple outcomes, either within the same market or across markets. Net exposure is simply the vector sum of positions.
Foremarket does not net positions across outcomes automatically. This avoids introducing implicit leverage or correlation assumptions. Traders who want to hedge must do so explicitly by acquiring opposing outcome shares.
Risk Controls and Position Limits
Because market creation is permissionless, Foremarket enforces protocol-level risk limits rather than relying on platform discretion.
These include:
Maximum position size per outcome
Maximum total exposure per wallet per market
Optional market-level caps set by creators
These constraints prevent single actors from dominating thin markets or manipulating early price formation.
Early Exit and Secondary Liquidity
Positions are fully transferable prior to settlement. Traders may exit early by selling outcome shares back into the AMM at prevailing prices.
This allows traders to realize profit or cut losses as beliefs evolve, rather than waiting for final resolution.
Why This Matters for Permissionless Markets
When anyone can create a market, participants must trust the mechanics, not the creator. By enforcing capped downside, explicit payoff rules, and deterministic settlement, Foremarket ensures that even niche or experimental markets remain safe to trade.
Markets can be wrong.
Questions can be unpopular.
But the rules are always clear.