What prediction markets are and why people trade
Prediction markets like Kalshi and Polymarket let participants bet on the outcomes of real-world events. The contracts, often settled by a simple yes/no payout, create a probabilistic market where the price of a contract reflects the market’s current probability assessment of the event. For traders, the idea is similar to trading on a forecast’s odds: buy contracts when you think the event’s probability is mispriced and sell when it isn’t.
Two major platforms, two paths to profit
Kalshi is a regulated exchange that offers event contracts on a range of topics, from political developments to weather, while Polymarket is a decentralized prediction market focused on information markets that leverage cryptocurrency liquidity. Both platforms incentivize accurate pricing through liquidity provision and market-making incentives, but they appeal to different risk appetites and trading styles. Traders can profit through arbitrage, directional bets, hedging, and liquidity provision.
Arbitrage and mispricing
Arbitrageurs seek price discrepancies across markets or contract types. If the same event is priced differently on Kalshi and Polymarket, a trader might buy the cheaper contract and sell the more expensive one, locking in a risk-free or low-risk profit once settlement occurs. Even within a single platform, small mispricings can arise from shifting news, sudden data releases, or low liquidity in niche contracts. Careful monitoring and rapid execution are essential to capitalize on these opportunities.
Directional bets and probabilistic thinking
Many traders use a probabilistic framework: interpret current news, data, and expert opinions to form a view on the event’s likelihood. If a trader believes a political outcome is more probable than the market suggests, they buy the corresponding contract. If new information confirms a different path, they may sell or short the contract. The challenge is managing the market’s evolving odds, which can swing with new information and changing sentiments.
Hedging and portfolio management
Prediction markets can function as a hedge for other positions. For instance, a trader with exposure to a macro event (like a central bank decision) might use a yes/no contract to offset potential losses. This hedging aspect adds risk management value to a diversified bets strategy, turning volatile news cycles into structured, tradable outcomes.
Risk, liquidity, and capital discipline
Trading on these platforms isn’t a guaranteed path to riches. Market liquidity – how many participants are active and ready to buy or sell – strongly impacts the ease of entering and exiting positions. In thin markets, contracts can swing disproportionately with small trades, increasing slippage and making precise bets harder. Savvy traders emphasize capital discipline: defining position sizes, setting stop-loss-like thresholds, and avoiding overconcentration in a single event.
Strategies used by successful prediction market traders
Successful participants blend quantitative checks with qualitative insights. They track real-time news flows, monitor contract spreads, and emulate market-makers to some extent by offering liquidity in under-served contracts. They also diversify across event categories and time horizons, from near-term political developments to longer-term economic outcomes. Over time, a repeatable process emerges: identify mispricings, execute promptly, manage risk, and learn from settled outcomes to refine probability estimates.
Regulation, safety, and platform differences
Kalshi operates under regulatory oversight in the United States, which can influence the types of events offered and the settlement rules. Polymarket’s model relies more on decentralized architecture and cryptographic settlement mechanisms, which can introduce different risk profiles, including smart contract risk and liquidity variability. Traders should understand each platform’s terms, fee structures, and settlement rules before committing capital.
Getting started for aspiring traders
Begin with education: understand basic probability theory, how contract prices reflect odds, and what settlement means for a given event. Start with small allocations to learn the mechanics, watch liquidity patterns, and note how news affects prices. As experience grows, you can pursue more nuanced strategies, balancing risk and reward while maintaining a disciplined trading process.
