Prediction markets are getting more like the stock market, and that is good news for platforms but bad news for small traders who want to make money from it. A new academic study of $13.76 billion in trades on Polymarket finds that roughly 27% of dollar profits were captured by just 3% of accounts that are “persistently skilled.” Those skilled accounts made money by reacting fast to public news, finding pricing differences across related contracts, and betting against other traders’ mistakes.
But as more professional traders join the game, the edge gets thinner. That is the trade-off at the heart of a growing field.
The Skilled Edge Shrinks
Theis Jensen, a Yale economist and co-author of the paper, put the shift plainly. “If you have a lot of skilled people, then they compete, and in doing so, they make prices more correct.”
That means the strategies that once worked — wide spreads, simple arbitrage across related contracts — will stop working as well. Julie Hoover, a Bank of America equity research analyst, told CNBC that tighter pricing cuts off the easy money. “It’s harder as markets get more efficient and spreads get tighter. It’s going to be harder to find these mispricing and arbitrage opportunities.”
Jensen expects the proportion of traders considered skilled to fall from 3% to potentially below 1%. “I think it’s only going to be the very, very best — say hedge funds — that are able to beat prediction markets,” he said.
For smaller traders, the news is not entirely grim. Hoover argued that niche markets still offer room for skill. “Smaller skilled traders could still retain an edge in niche markets, as the sheer breadth of contracts allows traders to develop highly specialized expertise and even become market makers,” she said.
Scale Limits the Big Players
Large institutions face a scale problem in thin markets. A relatively small order can move the price enough to “evaporate the institution’s own edge,” according to Jensen. That makes big firms less likely to enter lower-liquidity markets where specialists may keep an advantage.
The result is a counterintuitive one: traders without a persistent edge may actually benefit from more sophisticated competition. Better-calibrated prices reduce the risk that such players repeatedly overpay by taking the wrong side of pricing errors.
“In an efficient market, it’s harder to make mistakes consistently,” Jensen said.
He said the maturation of prediction markets could make them more of a “fair gamble.” Participants may still lose on any individual contract, and frequent traders remain likely to lose after transaction costs. But quoted prices should more closely reflect the risks they are taking.
What Platforms Gain From the Change
The professionalization of prediction markets is a mixed bag for users, but the platforms themselves stand to win. Greater institutional trading volume expands transaction fee opportunities. Better-calibrated prices strengthen the appeal of event contracts as hedging, forecasting and market-data tools.
The Federal Reserve has already flagged Kalshi’s reliability. Researchers found that Kalshi’s macroeconomic contracts matched or, in some cases, even outperformed conventional forecasting benchmarks. Its headline CPI forecast outperformed the Bloomberg consensus, while its core CPI and unemployment forecasts performed on par with the market data institution.
“Everyone will start referencing the data, and then people will start trading the data,” Hoover said.
The Numbers Behind the Shift
- Roughly 27% of dollar profits were captured by 3% of persistently skilled accounts on Polymarket
- The study analyzed $13.76 billion in trades
- Kalshi’s headline CPI forecast outperformed the Bloomberg consensus
- Core CPI and unemployment forecasts performed on par with market data
- Jensen expects skilled traders to fall from 3% to potentially below 1%
Who Stands to Win
The platforms gain from professionalization, and the skilled few continue to profit. The middle layer of traders — those without deep specialization or institutional backing — face a tougher path.
Jensen’s framing captures the whole picture. “If you have a lot of skilled people, then they compete, and in doing so, they make prices more correct.” Prices improve, but the crowd that once found easy money thins out.
That is the cost of efficiency. The skilled traders who survive will be the very best — hedge funds, specialists, the people who already had the edge before the professionals arrived. For everyone else, the game simply gets harder.
The study comes from an academic working paper, and its findings are specific to Polymarket’s trades. The $13.76 billion figure represents the total value traded, and the 27% of profits captured by 3% of accounts is a measure of how concentrated the winnings are. The analysis is based on actual trade data, not on surveys or models, which gives it a concrete basis for its conclusions.
The key facts are worth keeping front and center:
- $13.76 billion in trades studied
- 27% of profits captured by 3% of accounts
- Headline CPI forecast outperformed Bloomberg consensus
- Core CPI and unemployment forecasts matched market data
- Skilled traders expected to fall from 3% to below 1%
What the study shows is that the prediction market is becoming a more efficient place to trade. That efficiency benefits the platforms directly, since institutional volume grows their transaction fees. It also makes the data more useful as a forecasting tool, which could draw more users into the market.
The irony is that the very process that improves prices for everyone also makes it harder for the average trader to earn a living from the market. The skilled traders who can survive the tightening will be the ones who already have the resources and expertise to compete with institutions. Everyone else will need to find a niche, develop specialized knowledge, or simply accept that the odds of winning have shifted against them.