I had a thesis two months ago that you could detect predictors with insider knowledge and ride their coat tails and spent some amount of time staring at the data and running some ML algos to detect them. I learned some things about the market during this time, but did not succeed in my detection algorithm.
* Polymarket is a bit more transparent with who placed what bet, so it's a good place to go to study winners.
* The most consistent Polymarket winner I saw was placing 95%+ odds many, many times a day.
* Most markets will have a surprisingly small liquidity, so if your edge is just 5% you won't make as much as a 5% edge in the stock market could make you. This is good in that it keeps the biggest fish out, but some big players seem to be using strategies based on holding the most chips.
* Paper trading in Polymarket/Kalshi is very different than paper trading in the stock market, because even a few grand in Polymarket/Kalshi can have a big impact in how other "traders" interact with you. The traditional paper trade validation -> unleash the bot strategy doesn't work. You need to real trade with real money and scale up while watching how the market responds.
EDIT: Bonus learning -- yes the market runs by getting fish into the system. That's why Kalshi is advertising so much, it attracts suckers for the professional to win from, all while Kalshi takes a percentage.
I used to work for a sports betting company that identified individuals who were a little too good. The key is to remember that they are addicts and will bet on events regardless of if they have insider knowledge or not, so you have to account for this and not only identify the individuals with insider knowledge, but also what events they have that knowledge about and what they don't.
I used to play penny stocks for fun and it was a blast to be doing $3000 trades and be responsible for 30% of the volume for the day. You can learn a lot about how markets work if you adopt a penny stock, particularly the kind that trades in a wide range where you can buy in at 0.03 and figure "I'll sell when it hits 0.12" and sooner or later it does... then falls back down to 0.02.
This is interesting to me. I never had any enjoyment from traditional gambling when I dabbled in it. But I like the idea of being an expert on a little-known company and experiencng the response of my actions. Of course, it would be "for entertainment purposes only."
You can "trade the news" with penny stocks (this is basically just buying when people first start talking about it then selling when more people are talking about it), but like you say, the liquidity is soooooo low that you have to be really careful if you plan to sell more than a few hundred dollars.
Generally, you're going to lose money - so don't do it.
Like any kind of gambling you have to do it with money you can't afford to lose and if you want exposure to stocks it is hard to say that you shouldn't have a big chunk of your savings in something like $QQQ or $VOO.
Myself I was working on finance-adjacent stuff at the time and thought it had educational value. I did OK trading my favorite penny stock but I've had my share of financial misadventures, like I just had to buy $XIV because I wanted to see what happened and... I did.
> I had a thesis two months ago that you could detect predictors with insider knowledge and ride their coat tails and spent some amount of time staring at the data and running some ML algos to detect them.
> I learned some things about the market during this time, but did not succeed in my detection algorithm.
What failed? Was it too late to follow the trend by the time one was identified or something else? It seems much more transparent than trying to reason about say dark pool trades.
I am unfamiliar with working with such signal-to-noise ratios.
* I only had the example trades in the news as 100% confirmed positive trades.
* There are hundreds of millions of dollars in trades a day in Polymarket.
* In Polymarket you can just spin up a new account. If an account spins up, makes a $50k bet and wins, and then has no other activity, was that an insider trader or just someone with a behavioral pattern of spinning up new accounts? Just following up on these types of trades didn't provide a very big edge, as the nature of the trade adjusts the payout percentage.
> In Polymarket you can just spin up a new account. If an account spins up, makes a $50k bet and wins
You'd probably want to use some form of bayesian ranking, like say add 1k of total bets and 500 in total winnings to the raw scores.
But your bigger problem is just that people spinning up new accounts may be doing it to avoid your tracking. The kind of person with lots of evidence that they're good should be smart enough to know about copycat traders. The evilest among them might use a small bet to lure copycats and then trade against them in alts.
> The kind of person with lots of evidence that they're good
But what evidence is there that anyone is "good"? The fact that I am an insider to one event does not make me an insider to all events. If I were an insider to many events, I would probably have better ways to profit off of them. Placing a big bet is something I would do if I knew one thing.
This is the trap of modern society. Think about what you're doing: instead of anything productive, you thought a good use of your time was sitting there staring at numbers, hoping to find a pattern to make money off of people; who in their own right are using insider information to game a system; which itself is set up to capitalize off the fact that the larger economy has failed, and now all that's left is to just make money off of guessing.
We should be happy to live in a world where a significant fraction of people can conclude that "doing something productive" is not a hard requirement for survival.
I did blame the system, I said it's the trap of modern society. The only reason hx8 fell into this trap was because they thought it would be profitable, that's not a moral failing on the part of the poster.
Finance has always been the largest sector on the planet through every economic environment you have been alive for, I don't really understand why there is a current of this community that acts so divorced from its perpetual and all encompassing existence their whole lives
Despite you being an individual, you reflect an aberration of sentiment here that makes no sense
For example, the larger economy hasn't failed, another view is that this is price discovery of a mispriced agent in the market. A wage worker whose actual productivity isn't valued accurately, and a market based solution has been developed that allows for closer accuracy. More profits to the insider and the copy trader, their available capital and liquidity is derived from their utility to the employment sector and their potential profits with that capital and liquidity is derived from the event's actual utility to the market.
Additionally, the productivity of all agents isn't known, you don't know what they were doing with their time before and it likely was suboptimal already - as in doomscrolling on social media or vegetating on the couch.
Finally, you have no way of quantifying if those lazy things were suboptimal uses of time, or if a completely active other activity was suboptimal or optimal, as this goes into relative utility and schools of ethics.
It's only a matter of time until Social Security starts to fail, right after we've paid all the boomers their full benefits (and just in time for me to be eligible), and then they'll have to implement "austerity measures." After that, groceries, gas, housing, health "care," and higher education will have fully broken the middle class (it's already broken me, and I have a good job and a paid-off house), and the economy (sans imaginary AI investment bullshit) will be exposed as failing. AI (such as it is) will hammer entry level jobs, and tax revenues will be impacted by this. At the same time, we're going to have to start some sort of menial UBI, but with what money, I have no idea. Service on the national debt just surpassed military spending last year. When the shit hits the fan in another 10 years, the country will have to either go to war to reset the accounting ledgers, or actually put themselves on a budget. Which do you think will happen?
Given the numbers and rates we can see at present, all economic activity right now is a process of moving deck chairs on the Titanic. Sure, it hasn't failed, but it is an absolute certainly that it WILL. It's just a question of WHEN, and it's relatively soon. We have no adults in Washington. It's clear they're ALL just trying "get theirs" before it all comes crashing down.
Everything you described is future liquidity and who has it, but whether that’s the economy or enough of it to make a statement is unclear to me
And you wrote this all as a reaction to people trading on prediction markets? Markets that show velocity of transactions in a new, novel and growing way, which is the goal of our economies - to discourage hoarding in favor of transactions
Being a permabear doomer has nothing to do with the existence of prediction markets and other people’s participation in them
I realize I'm an N of 1, but I've participated in prediction markets since 2019 and am just above 5 figures in profit. Not life-changing money, but it certainly doesn't hurt.
I'm pretty conservative in my predictions and just think there is a lot of free money on these sites. Maybe that just supports the sentiments of this article and most of the negative comments on this post.
There are certainly cases where I got run over by the steamroller picking up nickels, but in general that's few and far between. A good example is getting trump losing the 2020 election at 90% after the election in November. If you find those types of markets and compound the earnings it's a pretty nice savings account.
I've also been burned by insider trading and vague rule interpretations but at this point, you chalk it up to the nature of prediction markets. I now try to stay away from markets that are more manipulative (e.g. mention markets).
I don't understand the hostility to prediction markets. There are definitely hedging opportunities and we're all adults.
I understand the hostility to them getting into sports betting since that seems to trigger a particular unhealthy impulse in young men but your anger should be first directed at the companies that are 100% sports betting (DraftKings and their ilk). I don't think the normal things prediction markets do subject young men to the same temptations.
Have you heard of the Sucker Effect? Your gains come solely from the those who made the wrong bet. There is no inherent value generation in the prediction markets unlike the stock markets. Yes, there is money to be made, but at a net loss to the society, so many would not consider these bets "opportunities" but rather "gambling".
The value generation is for passive observers: it is theoretically more informative to be told that there is a y% chance of x from someone with a financial incentive to be right.
(also, we allow plenty of zero and negative sum interactions in society. I don't know why this is special.)
This whole prediction market space seems like a 2026 version of ball and cup game betting. Most of the people participating fail to understand that they (and their pointless bets up for harvesting) are the product here.
My intuition is that it is a lot like sports betting: many laypeople bet for what they hope will happen, rather than trying to beat the market earnestly.
The winners, as you point out, are the house and those with insider knowledge.
Prediction markets are nothing more than gambling. Most people who gamble end up losing. If it were otherwise, running a gambling operation wouldn't be the enormously profitable endeavor that it is.
Everytime someone loses money on a bad bet in a prediction market, it's an opportunity for them to learn something about counter-party risk. You could easily make the argument that the more people are losing in prediction markets, the more learning is happening.
Counterparty risk would be more like the betting site going belly-up and not getting money out despite having a profitable trade. This is just regular risk.
I thought the entire point of prediction markets was to attract insiders with a way to turn their knowledge into cash. Doesn't that imply that everybody else is going to be net negative?
That's why death pools were supposed to be equivalent to assassination markets. Somebody would kill the person to win.
The only way (I would think) to make money if you're not an insider is to take advantage of the fact that most people believe in the Law of Averages and consistently err to moderation, so they overestimate small chances and underestimate large chances. Just bet with the crowd when the crowd (and reason) is overwhelmingly on one side. That depends on the vig being low enough not to obliterate that little bit of expected profit, though.
I ran the earliest predictions market online at the reboot of The Industry Standard.
Prediction markets fatally suffer from two
Problems.
1) large sharks making huge bets at the end (destroying any signal from earlier bets)
2) inside information on poorly written bets.
The solution is -parlay- edit: parimutuel style payouts but that destroys popularity (you are paid out at closing odds not at your time of bet odds spread to sell position).
Not only that, huge UMA tokens holders can also rig some bets on a technicality without much effort, especially since big UMA token holders seems to know each others. If you bet against Zelansky wearing a suit to meet Trump, and that by all account, he seemed to be wearing a suit, but you don't want to loose the bet, the "Oracle"/UMA holders can decide that it wasn't, in fact, a suit, and your bet will win.
> On Kalshi, too, losers vastly outnumber winners. Spokeswoman Elisabeth Diana said there are 2.9 unprofitable users for each profitable one based on data from the past month
So 25% of users are profitable? That's vastly more than on financial sites - stocks/futures/forex/options trading where only 5% of bettors are profitable.
> vastly more than on financial sites - stocks/futures/forex/options trading where only 5% of bettors are profitable
Source? I'm not doubting that there are products and forums where 95% of traders lose money. But that's far from representative for most financial-market participants.
10 year old paper on forex trading. 85% of losers here.
> The average trader is in the dataset for almost exactly six months (181 days). This is the amount of time between a trader’s first and last trade. About 25% of traders leave the sample within the first 46 days, while 50% of traders exit the sample within 155 days. Of the 181 days on average between open and close, traders are actively trading on an average of 50 of those days. The average trader has an equal-weighted return per trade of -0.035%, and very few traders quit while ahead. That traders have such small average returns per trade is not surprising given that the median trade is open for only 16 minutes, as can
be seen from Panel B. Only 16.2% of traders are profitable upon exiting the sample.
All those other markets are vastly bigger in scale and trade in trillions on a daily basis so it's an irrelevant comparison. Also the expectation is that the majority of that 25% are insiders. So you're comparing catching fish in a barrel where 25% of the participants hooked the fish prior to you getting a turn vs fishing in the open ocean (so 5% is pretty good with additional voting rights/tax benefits).
If you're buying an index fund, you're buying because you'd like to see your money grow in a predictable, sustainable manner.
If you're "investing" in a prediction market, you're "investing" because the alternative is going to your local casino, breathing in unholy amounts of cigarette smoke, and getting into a scuffle with a senior gambling their OASDI check over which slot machine you're sitting at.
And that's just not something most tech bro types are interested in. It screams "loser", not "value creation and market disruption wunderkind".
People keep saying they provide the market with information, and that's the benefit of allowing the insider trading, but no one has pointed out how in any way society has benefitted from the insider trading instances so far...
The answer is pretty obvious, right? It doesn’t reliably deliver on that promise, and in the meantime they rake billions on unregulated gambling with near zero institutional exposure.
It's useful for things like elections, where though popular media might push one line of thought primarily, the markets will adjust to be closer to the reality. Pretty visible in the 2024 elections where if you followed mainstream media at all, you probably wouldn't realize the markets had Trump at a 60% chance to win just before the election.
But for so many things, there's just too many sources of insider info. Reality television especially, the last couple seasons of Survivor have been clearly leaked if you look at a prediction market. And since all of production knows, and obviously all the players know, someone tells their family members, and all of a sudden you have a few hundred people who know for sure who will win.
The 2024 prediction market had like several large bettors on the Trump side https://www.bloomberg.com/news/features/2024-10-25/polymarke.... The Harris side had no equivalent counter-whales. So the ~60% Trump prediction was not really reflecting reality, more-so individual conviction. A more retail-only market would likely have priced it closer to 52–55% Trump, which matches with what the pollsters and mainstream media said.
> It's useful for things like elections, where though popular media might push one line of thought primarily, the markets will adjust to be closer to the reality. Pretty visible in the 2024 elections where if you followed mainstream media at all, you probably wouldn't realize the markets had Trump at a 60% chance to win just before the election.
But what exactly is the use of that? And as another example from the 2024 elections, every media outlet was pushing the validity of some stupid Iowa poll that only insiders even knew about, and was obviously just a random survivor that happened to get a few things right in a row. The prediction of a Harris landslide entirely flipped the odds in the prediction markets; if you had insider knowledge about that poll, you would have been able to make a fortune. If you had helped market that poll, you could have made a fortune.
The problem with prediction markets as predictors I think is that that they assume there will be a lot of insiders, rather than a very few. It gets confused with normal price discovery in a large, diverse and competitive market. Instead, prediction markets just match the (opinion) x (perceived trustworthiness) of the media landscape. If anything, insiders have a motivation to push the markets to be more inaccurate. They want to bet against them.
edit: but to restate my initial question - what's the use of polls that converge to the correct answer about 10 seconds before the actual votes come in? I asked the same thing when people were lusting over Nate Silver, and I still haven't gotten an answer. I understand using polls to guide your election expenditures; I do not understand the intense interest in them among spectators, or when the election is already mostly run.
>It's useful for things like elections, where though popular media might push one line of thought primarily, the markets will adjust to be closer to the reality. Pretty visible in the 2024 elections where if you followed mainstream media at all, you probably wouldn't realize the markets had Trump at a 60% chance to win just before the election.
How did that number more greatly reflect reality than the polls?
> "John Pederson outside the homeless shelter in Detroit where he has been living since losing money on Kalshi...Pederson lost $41,000 on a mention-market bet related to hip-hop artist A$AP Rocky in January"
I'm not a gambler, but when I consider it I think the worst thing that could happen to me would be to win a substantial but not life-changing amount of money. I think that's where most people get hooked. They get lucky once (or a few times), then get completely sucked in trying to replicate that success.