Why prediction markets are getting attention
Theres a lot to unpack with prediction markets, even though they may seem simple at first. After a few things are explained to you about prediction markets, you should feel a bit more comfortable whether or not you wish to pursue an interest in this new booming practice.
The edges of the finance and tech industries are seeing a growing amount of interest for prediction markets. Prior to 2018, wagering bets on sports was an illegal practice (with some exceptions). Someone caught in the middle of sports betting could face punishments like fines and imprisonment. Ever since the Supreme Court overturned the rule that criminalized sports betting, platforms like DraftKings, FanDuel, and many other platforms have grown in popularity because of what it offers with betting on sports.
Today, we have many more ways to wager money on that has evolved past sports. Platforms like Kalshi, Polymarket, Robinhood and more allow you to place bets on topics like elections, celebrity news, award outcomes, cryptocurrency milestones, inflation and interest rates – the topics are endless.
This article will discuss the discussion around prediction markets and why they’ve become so popular for many. It’ll also go over some strategies for those who are interested and of course the many cautions you should take if you choose to start trading on prediction markets.
What are prediction markets?
To simply explain what prediction markets are, they are platforms that allow its users to wager money against other people on the prediction of future events. A prediction market price will reflect how likely it is an outcome will occur for a specific event. Its based on what the collective believes. For example, if a market is trading at $0.65, then the market is saying: “There is a 65% chance of this outcome to happen.”
That number isn’t set by any one individual – its emerged through real money decisions from thousands of other participants.
How to be successful with prediction markets?
Each trader brings his or her’s own bias, education, research, and risk tolerance into each prediction. Do you have more information about a topic that will give you an edge? Are you more familiar with a certain celebrity or election polling data than others? These are the types of things that would help you in wagering bets.
Users buy and sell “yes/no” contracts on future outcomes. The price of each contract reflects the markets belief in the probability of the outcome. In the picture above, most people believe that the LA daily temperature will be greater than 61. That prediction is trading at $0.97 with the implication that it has a 97% chance of being true. However, that does not mean 97% of the market believes this outcome to happen.
If there is an inconsistency in price and what you believe will happen, that will be your edge in the market. Confidence is key with prediction markets, otherwise its just another way to gamble. That brings this article to the many criticisms of prediction markets.
Strategies
Arbitrage
Each platform has different topics and events to bet one. However, sometimes events on Robinhood and Kalshi will be so similar or the exact same that a great strategy to practice is arbitrage. By spotting the differences in the contract prices, you can place bets on which contract you believe will more likely go up or down.
Information edge/research
The primary way to make money on prediction market platforms is to have more accurate information or a better analytical model. If your research suggests a 75% chance of a contract being successful where its trading at 60%, you will profit as the price moves to that value.
Focus on niche or illiquid markets
The more hype or attention a market has, the better chance that its prices are highly efficient. That’s a bad thing if you are a trader looking for an entry you believe will move.
Large markets with a lot of attention may not be the best strategy sometimes. Looking for a smaller and niche market may provide opportunities with mispricing and inefficiencies that can easily be exploited for profit.
Behavioral bias
Never underestimate the power of emotions with trading any kind of market. Oftentimes, traders in prediction markets will overvalue the underdog or the “longshots” hoping to make 10x on a trade. Choosing the favorite or obvious pick is the best option. Being savvy against emotional decision making will help you trade better in prediction markets.
Corrupted gambling
In 2025, Terry Rozier was arrested for a major sports betting scandal that shocked the nation. He is being accused of participating in what could be considered “insider trading” in the sports gambling world. His accusation was telling associated that he would leave a game early, which enabled them to place $200,000 bets on his “underperformance.”
Prediction markets do not have the same regulations protecting against insider trading
Stock markets are strictly regulated and monitored for insider trading practices. Every now and then, people get accused and brought to justice for some form of using insider information to make investment decisions. Prediction markets as they currently are have looser fraud laws making it much easier to exploit them. And its completely legal.
Legalities of prediction markets
The traditional casinos are fuming over the fact that their businesses are being strictly regulated over gambling while the prediction markets are seeing a minored version of it. They argue that unregulated sports betting poses a threat to state-license gambling casinos like MGM, Caesars in Las Vegas.
Prediction markets are operating in a “gray area” in many states that have not legalized sports betting. They their contracts “futures contracts,” which have oversight from the Commody Futures Trading Commision (CFTC). This allows them to function in states where the legalization of sports betting has not been granted.
Final thoughts
The prediction market industry is ran through the industries of finance, technology, and human behavior. This is why it’s gathering so much attention right now. Prediction markets can be a good way to express beliefs through real money and consequences.
At the same time, prediction markets blur the lines a bit. The lack of protections against insider trading draw some serious concerns and criticisms, and rightfully so.
For traders and investors, prediction markets provide an area to learn skepticism, discipine, and independent thinking. Prediction markets are a tool, and they should be used responsibly and without abuse. Laws and regulations will come. By that time, they will have evolved into something different than what we are seeing today. It may be beneficial to be an early adoptor, or at least to stay informed about this new way to invest.
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