Original Author: Eniola
Original Translation: CryptoLeo (@LeoAndCrypto) 
Last week, I wrote an article about new projects in the prediction market—“The Most Comprehensive Review of New Prediction Markets in 2025 Part 1 Part 2”, based on the premise that “potential new projects or early users can gain potential profits.” Many prediction market projects are still in their early stages, and their trading volume and liquidity have not yet picked up, making them less attractive to users who need to make profits in a short cycle.
Today, I bring you arbitrage strategies for short-term users in the prediction market, written by Eniola, translated by Odaily Planet Daily as follows:
Where there is a market, there is arbitrage. Depending on the type of market, arbitrage may manifest as small or large price differences, but it always exists. The prediction market is no exception; at first glance, the profit margin may seem small, but with the right strategy, it can accumulate into substantial profits.
The prediction market is a platform for trading the outcomes of future events, where prices represent probabilities. If the trading price for “Yes” in the market is 0.65, it means the probability of that event occurring is 65%; the trading price for “No” is 0.35.
Once the event is finalized, the market price for the corresponding outcome may rise to $1 or drop to zero. [ 0.65 + 0.35 = 1 ]
If you are new to the prediction market, I recommend you take a look at What is a Prediction Market and How Does It Work: “Types of Prediction Market Mechanisms: Mechanisms and Trade-offs”
I also wrote an article about semantic traps (the ambiguity in the wording of prediction questions and how to define whether certain events occur). The wording in these prediction events can be tricky, and if you don’t read carefully, it can affect your trading.
What we need is a solid new niche market and decentralized platforms, not a replication of existing prediction market models. Additionally, the emergence of each new market will face issues of inefficiency, and low efficiency = arbitrage.
We need more high-quality markets, not more noise. One of the projects I am optimistic about is Opinion, and I shared the reasons in another article.
My Arbitrage Strategies
In this article, I will detail the main arbitrage strategies in the prediction market that I am familiar with, divided into two levels:
Easy to Understand: This way, you can “intuitively understand” without too much mathematical calculation.
Technical Proof: This way, you know that these numbers actually match.
1. Cross-Market Arbitrage
This arbitrage model can be applied when two platforms set different prices for the same event. You buy “Yes” at a lower price on one platform and buy “No” at a higher price on another platform to hedge. This way, regardless of the outcome, you can profit from the price difference.
For example, in the New York City mayoral election market:
On Polymarket, the trading price for Andrew Cuomo “Yes” is 17.1 cents, and “No” is 83 cents.
On Kalshi, the same market has “Yes” priced at 16 cents and “No” at 85 cents.
If you buy “Yes” on Kalshi and hedge by buying “No” on Polymarket:
Yes (B) + No (A) = 0.16 + 0.83 = $0.99
This means you can spend $99 to ensure you get $100, which is a 1% risk-free profit.
Note: You might think a 1% profit is too low, but don’t be fooled by appearances. In arbitrage trading, even small price differences can accumulate into considerable returns through repetition or scaling.
Sometimes, pricing errors can be more severe. Markets with lower liquidity or driven by attention, or multi-outcome markets can easily produce price differences of 5% to 10% or more, which you need to pay attention to.
2. Time Arbitrage (Buying Early vs. Late)
Some markets are hyped too early, especially political predictions, such as a candidate being priced too high before a debate. Over time and with real events, prices will definitely decrease, even if only slightly. If you buy or hedge at the right time, you can profit from this “repricing.”
This is very common in election markets. For example, suppose in June, hype pushes candidate A’s chances to 70%, and by September, those chances may drop to between 50% and 60%.
So, if you buy “No” when the hype peaks, you are making money. The secret is knowing that early prices often exaggerate reality, and if prices are overestimated too early, this will become very apparent.
Technical Strategy:
Suppose you buy “No” at a price of 0.3. Then, the “Yes” price drops to 0.5.
Hedge: Sell at 0.5, locking in $50.
If your trading volume is large enough, you can lock in a risk-free spread between 0.30 and 0.50. This is essentially mean-reversion trading in the prediction market. It’s like buying a stock that has been overhyped, knowing it will definitely be repriced.
3. Event Processing Arbitrage
Sometimes, certain platforms process events faster (or differently) than others. If you know how a market will settle before updates on other markets, you can trade in advance.
Example:
The prediction “Will SpaceX launch before September?” on Polymarket is processed quickly after the rocket launch, but the order book on Kalshi is still lagging. Before Kalshi updates, you can buy the “Yes” option at a lower price.
This is delay arbitrage; you are betting on the information gap, so if you continuously monitor real-time information sources (e.g., election results, court rulings, sports events), you can easily stay ahead of slower platforms.
4. Liquidity Arbitrage
Thin order books or sudden hype can distort prices. If several large trades come in, they may temporarily push the odds far from reality.
For example, if an event suddenly rises due to a large trade and deviates from reality, you can buy “No” and close your position for profit once it corrects to reality.
5. Semantic/Oracle Arbitrage
This one is a bit tricky; if you’ve read my article on semantic traps, you’ll understand what I mean and how to spot them. It involves the interpretation of the oracle and the perception of traders. If you can predict or fully understand how the oracle interprets, you can take advantage of mispriced odds. Less math knowledge, more rule/text arbitrage.
The fact is that the current prediction market mechanism is not perfectly efficient; there are always small gaps in the market, and your task is to discover them, exploit them, and then let compound interest work.
A 5% difference compounded 20 times will grow 2.65 times.
A 10% difference compounded 20 times will grow 6.7 times.
Arbitrage Tools
If you are sharp and patient enough, most of the above strategies can be done manually. However, this field is rapidly evolving, and new tools are emerging. Here are two suitable arbitrage tools:
dk has launched an agent that can research markets, scan for volatility, and even discover arbitrage opportunities, supported by Kalshi. It is currently open to private beta testers, and you can join the waiting list via email to register an account once approved.
ArbX: A paid tool that can discover price differences for the same event on platforms like Kalshi and Polymarket.
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