Prediction markets do not bet on the truth, but on cognitive biases.
Written by: Changan, Biteye Content Team
In prediction markets, the essence of the game is not the truth, but the pricing discrepancies.
For professional traders, Polymarket is more like an alternative financial hunting ground composed of probabilities, odds, liquidity, and information asymmetry.
Some bet based on intuition, others follow emotional trends; while the players who truly make money in the long run extract risk-free or high-probability profits from these pricing imbalances through systematic strategies.
In this article, Biteye systematically breaks down for you:
- The most mainstream and genuinely existing arbitrage logic in prediction markets
- Multiple real arbitrage cases to see how experts make money
- Whether ordinary players still have opportunities in a highly competitive environment
I. Five Major Arbitrage Strategies: From Mathematics to Manipulation, Which One Are You?
1. "Picking Up Money" Arbitrage Within the Platform: When YES + NO = 1
Principle: Utilize the mathematical property that binary options must settle at 1, monitoring the moments when the sum of YES and NO prices is below 1, while simultaneously buying positions on both sides. Profit is guaranteed from the price difference at settlement.
Example: At a moment when the total is 0.97, buy positions on both sides. Regardless of the outcome, holding until settlement will guarantee a $1 payout, with the 0.03 price difference being the profit.
⚠️ Small tip: Currently extremely competitive, dominated by high-frequency bots, making it difficult for retail investors to find opportunities.
2. Cross-Platform Arbitrage: Rule Differences Create Opportunities
Principle: Capture price differences for the same event across different prediction platforms (e.g., Polymarket, Kalshi, Opinion Labs, Limitless, etc.), buying low and selling high to lock in profits.
Example: If an event's Yes price on Polymarket is 45¢, and the equivalent No price on Kalshi is 52¢ → lock in the price difference.
⚠️ Small tip: Different rules or oracle systems on both platforms may lead to different settlement outcomes.
3. Information "Front-Running" Arbitrage: Just a Few Seconds Faster Than the Market is Enough
Principle: Utilize off-chain data (such as live sports broadcasts, real-time vote counting) that is faster than the on-chain order book update time to place lightning-fast orders.
This likely originated from traditional hedge funds, where algorithms would capture live streams of Federal Reserve speeches during meetings. If the frequency of dovish keywords (like neutral, easing, moderation) exceeded expectations, the algorithm would clear all sell orders for Treasury futures or the S&P 500 index within 10 milliseconds.
⚠️ Small tip: This is also common in prediction markets for sports events, where on-site spectators or dedicated high-speed live streams are often 5-10 seconds faster than TV broadcasts.
4. Negative Risk Arbitrage: Hedging Principal with Probability Distribution
Principle: In markets involving multiple mutually exclusive options (like elections or multi-party events), hedge principal risk by simultaneously placing multiple NO positions, utilizing the overall pricing deviation of probabilities for each option.
⚠️ Small tip: Essentially, this uses mathematical probability distributions to ensure certainty in profits when most outcomes occur, and even in the worst-case scenario, maintain a break-even point or incur minimal losses.
5. Market Price Spread Making Arbitrage: Low Liquidity = More Opportunities
Principle: In newly launched or low liquidity markets on Polymarket, earn intermediate profits by placing buy and sell orders at price spreads.
Example: In a market where the buy price is 0.3 and the sell price is 0.7, with a difference of 0.4. You can buy at 0.31 and place a sell order at 0.69, capturing the profit from the price spread.
⚠️ Small tip: Keep an eye on market order book data, but be wary of market sentiment/news causing one-sided price movements; choose familiar sectors for operations.
II. Real Case Reviews: How Top Traders Made Millions on Polymarket?
1. "Statistical" Arbitrage on the Number of Musk's Posts
There are many continuous markets in prediction markets with ample historical data for backtesting.
For example, the prediction market for the number of posts by Musk: Traders conduct quantitative analysis on Musk's historical posting data to identify deterministic patterns:
- Weekday posts exceed weekend posts by 20
- Winter activity is 3.1 times that of summer
- February is the most active month of the year.
After analyzing possible variable factors, traders can buy when probabilities significantly exceed the expected range.
In addition, there are many similar markets in prediction markets. Studying NBA teams' home and away performances, average points scored, and losses, and calculating such data using mathematical models for betting.
2. Violent Manipulation Arbitrage in a 15-Minute Market (Total Profit: 280K)
PM trader a4385 exploited the vulnerability of Polymarket's short-term prediction market during low liquidity periods, manipulating spot prices with small costs to reverse harvest the opposing side of the prediction market.
During weekends, the market depth for tokens is shallow, where even small amounts of capital can cause price fluctuations.
He bought "up" on PM's XRP 15Min price prediction, even disregarding odds to forcefully sweep the market.
At the moment the 15 Min prediction window was about to settle, he instantly raised the XRP spot price with $1 million on Binance, causing the XRP 15 Min K-line to close up.
Currently, a4385 has a total profit of 280K on Polymarket, with an average cost of around $6,000 for each price manipulation.
If you pay close attention, you might occasionally notice that the correlation between XRP's price and probability during weekend periods decreases. The 15 Min line closes down, but the probability is at 0.5, indicating that funds are being manipulated again.
This is an extreme case of a structural flaw in the prediction market.
3. Automated Arbitrage of Volatility + Probability (Total Profit: 448K)
PM trader distinct-baguette focuses on binary markets for cryptocurrency prices (settling at $1 for Yes/No), achieving a profit of $448K through 26,756 trades.
The core of his strategy lies in constructing an automated model using volatility + probability arbitrage.
Waiting for moments of repricing during volatility or panic, when the sum of probabilities for "Yes" and "No" is below 1, he buys both sides.
By employing stable position management and executing high-frequency repeat operations, he converts small pricing discrepancies into scaled profits, averaging $17 profit per trade.
4. News-Driven Subjective Trading (Total Profit: 850K)
Car @CarOnPolymarket is among the top 0.01% of traders on Polymarket, with a historical profit of $850K.
His operations differ from the aforementioned arbitrage, focusing on news trading across various hot sectors like politics and macroeconomics.
When major news breaks, he quickly analyzes the event's transmission impact on related markets and decisively builds positions in the direction of the trend.
When market sentiment slows and consolidates, he immediately takes profits, never waiting for the settlement phase.
Example: GTA 6 (Grand Theft Auto 6) is a game developed by American company Rockstar Games. It is regarded as one of the most anticipated games globally, and any news regarding its development progress or release date generates immense attention from players and the market. When news of a fire at the office just broke, the Yes price for "Will GTA 6 be released before 2025?" on Polymarket was still low. The market had not fully accounted for the impact on GTA 6's development progress, and Car seized this information window to buy "No" or sell "Yes." As the fire news went viral on social media, many followed suit and bought "No." When the news hype peaked and the price reflected the fire's expectations, Car would immediately take profits and close positions.
This operation method, based on sudden news, betting only on probability corrections, and not waiting for settlement, is the closest to professional trader thinking in prediction markets.
5. Reversal Trading: Betting on Market "Overconfidence" (Total Profit: 6K)
There is always a possibility of reversal in prediction markets, and a group of traders specializes in betting on reversal possibilities.
According to Dune's data: The accuracy rate for Polymarket in the 4 hours before settlement is 95.4%, in the 12 hours before settlement is 89.4%, and in the 1 day before settlement is 88.2%.
Thus, this group of traders specifically targets such markets to buy into the possibility of reversals, with their buying prices typically not exceeding 10¢, which is a typical low-probability high-odds strategy.
III. Three Suggestions from Biteye for Ordinary Players
Polymarket's monthly trading volume continues to hit new highs, with profit cases emerging constantly, indicating that this market is gradually maturing. Although arbitrage opportunities are being compressed, the increase in market depth and breadth has also spawned more new opportunities reliant on cognition and strategy.
Here are three suggestions from Biteye for everyone:
1. Stay Away from the Battlefield of Bots
Due to the mainstreaming of Polymarket, simple Yes + No = 1 arbitrage has become a game among bots.
2. Learn to Copy Homework
Use on-chain analysis tools to monitor the dynamics of top wallets and new wallets (which may be wash trading), combined with research on news/events to place bets, engaging in subjective trading of pricing discrepancies.
3. Dynamic Profit Taking, Never Be Greedy
The odds in prediction markets are dynamic; once your judgment is reflected by the market, the advantage has already been realized. Taking profits early greatly increases capital turnover for later retail investors and avoids disputes during final settlement.
In conclusion: Cognitive bias is your arbitrage space.
Prediction markets are transitioning from niche to mainstream, and profit models are evolving from simple arbitrage to cognition-driven strategies. Understanding the rules, mastering information, and maintaining discipline will give you the opportunity to become a long-term winner in the game of probabilities.
Prediction markets do not bet on the truth, but on cognitive biases. Are you ready?
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