What is Return in Trading? Understanding Return on Investment in Prediction Markets
Learn what return means in prediction market trading, how it's calculated on Polymarket, and why Merlin's Return Rating system helps identify the most efficient traders.
Return on investment is one of the most important metrics for evaluating prediction market traders — but it’s also one of the most misunderstood. On Polymarket, return tells you how efficiently a trader converts their capital into profit, regardless of how much money they’re working with.
Return Formula
The basic return formula for prediction market trading is:
Return = (Profit / Total Volume) × 100%
Where:
- Profit (P&L) is the total gains minus total losses
- Total Volume is the sum of all capital deployed across trades
Example: A trader who deployed $100,000 in total volume and earned $15,000 in profit has a 15% return. Another trader who deployed $1,000,000 and earned $50,000 has a return of just 5% — even though their absolute profit is higher.
This is why the Merlin leaderboard lets you sort by both P&L and return — they tell different stories about trader performance.
Why Return Matters More Than Raw Profit
Consider two traders:
| Metric | Trader A | Trader B |
|---|---|---|
| Total Volume | $50,000 | $2,000,000 |
| Profit (P&L) | $12,500 | $40,000 |
| Return | 25% | 2% |
Trader B earned more money in absolute terms, but Trader A was far more efficient with their capital. If Trader A had the same capital as Trader B, they would have earned $500,000 at the same return rate.
This distinction matters because:
- Return measures skill — it shows how well a trader identifies mispriced markets
- P&L measures scale — it shows how much capital a trader deploys
- High return with low volume often indicates a skilled trader who hasn’t yet scaled up
- Low return with high volume may indicate a market-maker who profits from spreads rather than directional bets
Merlin Return Rating System
The Merlin Return Rating classifies traders into five tiers based on their all-time return performance:
| Rating | Return Range | Description |
|---|---|---|
| S-tier | ≥ 20% | Exceptional — consistently finds significant edge |
| A-tier | 10% – 19.9% | Excellent — strong analytical skills |
| B-tier | 5% – 9.9% | Good — above average performance |
| C-tier | 0% – 4.9% | Average — profitable but minimal edge |
| D-tier | < 0% | Negative — losing money overall |
You can see return ratings on trader profiles and filter by rating on the leaderboard. The statistics page shows the distribution of ratings across all tracked traders.
Return Across Different Time Periods
Return can vary significantly across time periods. A trader might show:
- 24-hour return: -5% — had a bad day with losing positions
- 7-day return: 8% — generally performing well this week
- 30-day return: 12% — strong monthly performance
- All-time return: 15% — consistently profitable over their career
The Merlin leaderboard shows performance across four time periods (24h, 7d, 30d, All Time) so you can evaluate consistency. A trader with steady return across all periods is generally more reliable than one with extreme short-term spikes.
Return by Category
Different Polymarket categories have different typical return ranges:
- Politics: Tends to offer higher return opportunities during election cycles due to retail traders overreacting to polls and media narratives
- Crypto: High volatility creates both opportunities and risks — return tends to be bimodal (very positive or very negative)
- Sports: More efficient markets with smaller edges — professional sports bettors have migrated here, tightening spreads
- Economics: Data-driven markets where quantitative traders have an edge — return opportunities exist around Federal Reserve decisions and jobs reports
Check the category leaderboards to see which categories have the highest average return among top traders.
Common Return Misconceptions
”Higher return always means a better trader”
Not necessarily. A trader who made one $100 bet and won $50 has a 50% return — but with zero statistical significance. Return is only meaningful when combined with sufficient volume. That’s why the Merlin Trader Score weighs both return and volume together.
”Negative return means the trader is bad”
Sometimes. A negative 30-day return might mean the trader has open positions that haven’t resolved yet — their P&L reflects unrealized losses that may reverse. All-time negative return with high volume, however, is a genuine warning sign.
”Return should be compared across all traders equally”
Different strategies produce different return profiles. Market-makers typically have 1-3% return but with very high volume and consistency. Event-driven traders might show 15-30% return but with higher variance. Compare traders using similar strategies for meaningful comparison.
How Top Traders Maintain High Return
Analyzing S-tier and A-tier traders on the Merlin leaderboard reveals common practices:
- Selective trading: They don’t trade every market — they wait for situations where they have a genuine edge
- Position sizing: Larger positions in high-conviction trades, smaller positions in speculative ones
- Cutting losses: They exit losing positions quickly rather than hoping for a reversal
- Category focus: Most specialize in 1-3 categories where they have domain expertise
- Information discipline: They base decisions on data and analysis, not social media hype or FOMO
Using Return for Copy Trading
If you’re considering following traders via the Merlin Telegram bot copy-trade feature, return is a crucial metric to evaluate:
- Look for traders with consistent return above 10% across multiple time periods
- Verify they have sufficient volume — at least $50,000+ all-time — to ensure statistical significance
- Check their Whale Tier — Dolphin-tier and above traders have enough skin in the game to take seriously
- Review their open positions on their profile page to understand their current exposure
- Consider their Merlin Trader Score which combines return with volume and consistency
Return vs. Other Performance Metrics
| Metric | What It Measures | Best For |
|---|---|---|
| Return | Capital efficiency | Comparing skill regardless of capital |
| P&L | Absolute profit | Measuring total earnings |
| Volume | Total capital deployed | Gauging commitment and activity level |
| Win Rate | Percentage of profitable trades | Understanding consistency |
| Trader Score | Overall performance (0-100) | Single-number assessment |
The Merlin leaderboard displays all of these metrics, giving you a complete picture of each trader’s performance.
Improving Your Own Return
If you’re actively trading on Polymarket, here are practical steps to improve your return:
- Track everything: Record your reasoning for each trade so you can review what worked
- Focus on expected value: Don’t chase low-probability longshots unless the payout genuinely compensates for the risk
- Learn from the best: Study traders with high return on their Merlin profiles — what categories do they trade? How do they size positions?
- Be patient: Positive return compounds over time. A consistent 10% return is far better than swinging between +50% and -40%
- Use the glossary to understand all the metrics available to you
Return is the clearest signal of trading skill in prediction markets. By understanding how it’s calculated and what influences it, you can make better decisions about your own trades and which traders to follow.