WASHINGTON, DC – Polymarket media on display at the launch of a pop-up experience shows data on the popularity of potential political candidates in Washington, DC on March 20, 2026 (Photo by Alex Kent/The Washington Post via Getty Images)
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Prediction market platforms’ courtship of Wall Street will bring deeper professional liquidity and increase competition, but it will also mean it will be harder for many traders to make money.
An academic paper that analyzed $13.76 billion in polymarket trades found that about 27% of dollar profits were captured by just 3% of “persistently skilled” accounts, repeatedly moving market prices toward their eventual outcome.
Skilled accounts earned stable profits by reacting more quickly to published news, arbitraging inconsistent pricing across related contracts, and trading against behavioral errors. But as more institutions pursue the same discrepancy, prices adjust faster and the available edge becomes scarcer.
“When you have a lot of skilled people, they compete, and that makes prices more accurate,” said Theis Jensen, an economist at Yale University and co-author of the paper.
This means that strategies that rely on wide spreads between related contracts and simple arbitrage may find it more difficult to make a profit.
“As markets become more efficient and spreads tighten, it’s going to get harder. It’s going to get harder to find these mispricing and arbitrage opportunities,” Julie Huber, an equity research analyst at Bank of America, told CNBC.
As competition intensifies, Jensen predicts the percentage of traders considered to have an advantage could shrink from 3% to less than 1%.
“I think only the very best, say hedge funds, will be able to beat prediction markets,” he said.
However, Huber said small, seasoned traders could still have an advantage in niche markets, as traders can develop highly specialized expertise through a wide range of contracts and even become market makers.
Large financial institutions also face scale constraints when markets are thin. Jensen said even relatively small orders can cause prices to fluctuate enough to “evaporate the financial institutions’ own advantage,” making it less likely that large companies will enter illiquid markets where specialists can maintain an advantage.
An advertisement for Polymarket at a subway station in New York, USA, on Thursday, February 5, 2026. Calci and Polymarket, which has been accused by critics of encouraging financial risk-taking by making betting more accessible, are now using promises of free groceries to win over New Yorkers. Photographer: Michael Nagle/Bloomberg via Getty Images
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Counterintuitively, participants without durable advantages may benefit from a higher degree of competition through better pricing.
Better price adjustment would reduce the risk that such players would repeatedly overpay by viewing mispricing on the wrong side.
“In an efficient market, it’s harder to make mistakes consistently,” Jensen said.
He said that as prediction markets mature, they could become more “fair gambling.” Participants can still suffer losses on individual contracts, and frequent traders are still likely to suffer losses given trading costs, but quoted prices should more closely reflect the risks they are taking on, it said.
While prediction market specialization has pros and cons for users, there are clear benefits for platforms. Increased trading volumes by institutional investors will expand trading fee opportunities, while better calibrated pricing will strengthen the appeal of event contracts as hedging, forecasting, and market data tools.
Kalsi outperformed headline CPI, in line with Bloomberg forecasts
Federal Reserve Board
Prediction markets are already considered reliable by many. Fed researchers found that Kalsi’s macroeconomic contracts matched and in some cases exceeded traditional forecast benchmarks. The firm’s composite CPI forecast beat the Bloomberg consensus, and its core CPI and unemployment rate forecasts performed in line with market data agencies.
“Everyone will start looking at the data, and then people will start trading that data,” Huber said.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
