Wall Street is moving in

Prediction market platforms are courting institutional money. Deeper liquidity is coming, and so is competition that makes it harder for most traders to profit.

Three percent take the money

An academic paper studying $13.76 billion of Polymarket trades found that 3% of accounts, the persistently skilled ones, captured about 27% of all dollar profits.

How the winners win

Skilled accounts reacted to public news faster, arbitraged inconsistent pricing between related contracts, and traded against other people's behavioral mistakes.

Competition erases the edge

When more institutions chase the same discrepancies, prices correct faster and spreads tighten. Yale economist Theis Jensen expects the share of traders with an edge to fall from 3% to under 1%.

“I think it's only going to be the very, very best, say hedge funds, that are able to beat prediction markets.”

Niches still belong to specialists

BofA's Julie Hoover says small traders can stay ahead in obscure contracts. Big firms avoid thin markets because their own orders move the price and evaporate their edge.

“Relatively small orders can move the price enough to evaporate the institution's own edge”

Losers get a better deal

Traders without an edge benefit from sharper pricing. They stop repeatedly overpaying on the wrong side of errors, turning the whole thing into something closer to a fair gamble.

“In an efficient market, it's harder to make mistakes consistently.”

The forecasts already work

Federal Reserve researchers found Kalshi's headline CPI contract beat the Bloomberg consensus, with core CPI and unemployment on par. Accurate prices make the data itself the product.

“Everyone will start referencing the data, and then people will start trading the data.”