Prediction markets getting more professionalized and harder to beat
Prediction markets are becoming increasingly professionalized, with institutional traders capturing a larger share of profits. Experts suggest that as these markets become more efficient, it will be significantly harder for casual traders to find an edge.
Why it matters
The shift toward institutional dominance in prediction markets changes the landscape for retail investors and the accuracy of market-based forecasting.
Prediction-market platforms' courtship of Wall Street stands to bring in deeper professional liquidity and intensify competition, but will also mean it's harder for many traders to make money.
Roughly 27% of dollar profits were captured by just 3% of accounts that are "persistently skilled," repeatedly moving market prices towards outcomes that eventually occurred, according to an academic working paper analyzing $13.76 billion of Polymarket trades.
Skilled accounts earned consistent profits by reacting more quickly to publicly available news, arbitraging inconsistent pricing across related contracts and trading against behavioral errors. But as more institutions chase the same discrepancies, prices adjust faster and the available edge becomes scarcer.
"If you have a lot of skilled people, then they compete, and in doing so, they make prices more correct," said Theis Jensen, Yale economist and co-author of the paper.
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