Definition
A Central Limit Order Book (CLOB) is the dominant trading model in financial markets. All open buy and sell orders are listed in a centralised book, ranked by price (best bids at top, best asks at top) and by time at each price level (first in, first served). When a new order arrives, it is matched against the best available opposing order.
How Polymarket's CLOB works
Polymarket runs a CLOB on its smart contract infrastructure. When you place a limit order to buy YES at $0.47, that order enters the book and waits. A counterparty placing a sell order at $0.47 or lower will trigger a match. Until matched, your order is visible to the market.
Kalshi operates similarly with its regulated exchange model — orders match via a central book, not an AMM or peer-to-peer system.
Why it matters for arbitrage
CLOB mechanics directly affect arbitrage execution. Key implications:
- Limit orders protect your edge. Market orders in a CLOB fill against whatever is available — potentially at much worse prices. Limit orders guarantee fill at your price or better.
- Partial fills are possible. If insufficient liquidity exists at your price, only part of your order fills. This creates partial leg risk in arbitrage.
- Order book depth matters. A deep order book (many orders at many price levels) means you can trade larger sizes without moving the price. Thin books cause slippage.
CLOB vs AMM
Some prediction markets use Automated Market Makers (AMMs) instead of CLOBs — prices are set algorithmically based on the ratio of funds in a pool. AMMs guarantee fills but produce slippage on larger trades. CLOBs don't guarantee fills but allow precise limit orders. Polymarket and Kalshi both use CLOB models.