Prediction Markets: A Speculator's Field Guide
Where prediction markets reliably outprice traditional bookmakers, and where they don't.
Prediction markets price contracts in cents. A contract at 38¢ pays $1 if the event happens, $0 if it does not. The current price is, in theory, the market's implied probability.
In practice prediction markets are deep on political events, moderate on macroeconomic milestones, thin on niche outcomes. Thin markets move on the whims of a handful of traders, which means edge can be substantial but liquidity is brittle. If you cannot exit the position, your unrealized P&L is fiction.
Three practical observations from the past few cycles: - Prediction markets tend to lag breaking news by 5-20 minutes. Aggressive traders profit from this. Casual traders get adversely selected. - Election prediction markets diverge from polling averages near the tails. Markets price 'shock' outcomes higher than polls. Polls are right more often than markets, but not always. - Resolution criteria matter more than you think. Read the contract before you commit.
ROW treats prediction market entries the same as any other speculation: thesis, size, confidence, and a postmortem. The only thing that changes is that 'odds' becomes 'cents' and 'payout' becomes 'contracts × $1.'