Prediction markets are becoming more professionalized, but also harder to beat
The institutionalization of prediction markets threatens to erode the edge of skilled traders who earn off mispricing and market inefficiencies, experts say.
TL;DR
- Prediction markets are attracting Wall Street firms, increasing liquidity and competition.
- A small percentage of persistently skilled traders captured a large portion of profits by exploiting market inefficiencies.
- Increased institutional participation is expected to make prices more efficient and arbitrage opportunities scarcer.
- The proportion of traders with a profitable edge is predicted to shrink significantly.
- Smaller, skilled traders might retain an edge in niche markets, and large institutions may avoid low-liquidity markets.
- More efficient markets, while harder to profit from, could offer fairer pricing for all participants.
- Professionalization benefits platforms through increased trading volume and appeal as forecasting tools.
- Prediction market data is being recognized for its forecasting accuracy, comparable to conventional benchmarks.