The prediction market industry spent the last two years telling retail traders they were participating in “the future of information.” Turns out most of them were participating in the future of losing money to bots.
A peer-reviewed study published in April 2026 by researchers at HEC Montreal analyzed every single trade on Polymarket since the platform launched. They looked at 1.72 million accounts and $13.76 billion in cumulative trading volume. The findings aren’t subtle: 68.8% of users lost money. The top 1% of traders captured 77% of all gains. The top 0.1% took home more than half the platform’s total profits.
Reddit saw those numbers and had the reaction you’d expect.
”It’s just a casino with better marketing”
That’s the top comment from a thread in r/wallstreetbets that got 4,200 upvotes after the Bloomberg report dropped. And while prediction market advocates will argue there’s a meaningful difference between event contracts and slot machines, the data makes that distinction harder to maintain with a straight face.
The study, conducted by Pat Akey, Vincent Gregoire, Nicolas Harvie, and Charles Martineau at HEC Montreal, found that just 3% of Polymarket traders account for virtually all meaningful price discovery. These are the accounts moving prices toward the correct outcome. The remaining 97% are, in aggregate, on the losing side of trades against this informed minority.
Over 100,000 accounts lost at least $1,000 since January 2025. That’s nearly twice the number that cleared $1,000 in profit going the other direction. The losers dropped a combined $131 million, and that money flowed almost entirely to a small cluster of high-frequency accounts that exhibit bot-like trading patterns.
One Redditor in r/cryptocurrency put it bluntly: “So prediction markets are just PvP where bots are the final boss. Cool.”
The insider trading problem nobody fixed
The profitability concentration would be concerning enough on its own. But it gets worse when you look at who some of these profitable traders actually are.
In March 2026, a U.S. Army soldier was charged with five felonies for using classified intelligence to place $33,000 in bets on Polymarket that the operation to capture Nicolas Maduro would proceed. He cashed out roughly $400,000 when it did. Multiple members of the Israeli Air Force have been interrogated or indicted for betting on the timing of Israeli and American strikes on Iran, with one officer allegedly earning $244,000 alongside a colleague who received the intelligence.
On April 7, at least 50 newly created Polymarket accounts placed large bets that the U.S. and Iran would reach a cease-fire agreement shortly before the announcement appeared on Truth Social. A Fortune investigation found the pattern repeated across multiple geopolitical events, with newly minted accounts placing correctly timed bets at statistically improbable rates.
The platforms responded. Polymarket partnered with Chainalysis for blockchain surveillance. Both Polymarket and Kalshi rolled out rules barring politicians from trading on their own campaigns and athletes from trading in their own leagues. But Reddit’s response to these reforms was skepticism bordering on contempt.
“They banned politicians from trading on their own elections? What about their staffers? Their donors? Their cousins?” wrote a user in r/politics who’d clearly been following the story longer than most.
The Arizona criminal charges
While the federal government has given prediction markets a regulatory blessing through the CFTC, not everyone agrees the framework works. Arizona prosecutors filed criminal charges on March 17, 2026, accusing Kalshi of operating an unlicensed online gambling business within the state.
The legal theory is straightforward: if most participants lose money, the outcomes are uncertain, and the platform takes a cut, it functions as gambling regardless of what federal regulators call it. Arizona isn’t alone in this interpretation. Multiple state attorneys general have signaled they’re watching how the case develops before deciding whether to bring their own actions.
The r/legaladvice crowd found this fascinating. “The CFTC says it’s a derivatives exchange, Arizona says it’s an illegal casino. Both can’t be right, and the answer probably depends on which lobby spent more,” one comment read.
For traders, the practical implication is regulatory uncertainty. If states successfully challenge the federal framework, prediction market access could become a patchwork of availability similar to sports betting or cannabis.
The whale manipulation problem
Beyond insider trading, the platforms face a structural vulnerability that the academic study didn’t fully address but Reddit absolutely did.
Polymarket resolved “YES” on a $16 million market asking whether the Trump administration would declassify UFO files, even though no documents were actually released. The resolution came after late-session buying drove prices from reasonable levels to 99 cents, triggering the Optimistic Oracle system that Polymarket uses for settlement. Just two whale accounts control over half the voting power in UMA, the protocol that handles dispute resolution.
A separate incident involved a $7 million market producing an erroneous outcome through what appeared to be coordinated manipulation of the resolution mechanism. In both cases, regular traders who’d taken the correct position were paid out incorrectly because the settlement layer was compromised.
“Imagine being right about a prediction and still losing money because two whales decided reality is whatever they say it is,” wrote a user in r/CryptoMarkets. The post got gilded three times.
Who’s actually making money?
The Bloomberg analysis identified a pattern among the winning accounts: most exhibit characteristics of automated trading systems. High trade frequency, precise position sizing, rapid response to news events, and consistent profitability across hundreds of markets. These aren’t retail traders making clever predictions about geopolitics. They’re algorithmic operations exploiting the spread between informed and uninformed traders.
The academic paper made this explicit: prediction markets achieve their vaunted accuracy not through the “wisdom of the crowd” as commonly claimed, but through a tiny elite of informed traders whose profits come directly from the positions of everyone else. The crowd isn’t wise. It’s the liquidity that the wise extract from.
This finding reframes the entire value proposition of prediction markets for retail participants. If you’re not an insider with non-public information or a bot with algorithmic advantages, you’re not a trader. You’re the product. Your losing positions are the profit margin for the 3% who actually know what’s going to happen.
The “it’s educational” cope
One recurring defense in prediction market communities is that even if you lose money, you’re “paying for information” about the probability of real-world events. You’re learning about geopolitics, elections, and economic trends by having skin in the game.
Reddit’s response to this was predictable. “I can learn about geopolitics by reading the news for free instead of losing $2,000 betting on whether the Fed raises rates” was the top reply in an r/personalfinance thread discussing whether prediction markets belong in a portfolio.
The Advisor Perspectives analysis tried to find a middle ground, arguing that Kalshi is “half right” about the distinction between prediction markets and gambling. The half they’re right about: the contracts have real informational value for society. The half they’re wrong about: that informational value doesn’t translate into positive expected returns for the average participant.
Where this leaves retail traders
If you’re considering putting money into prediction markets, the data says you’re probably going to lose it. Not definitely. But 69% probably. And if you do profit, you’ll likely be competing against automated systems and people with informational advantages you don’t have and can’t replicate.
None of this means prediction markets are worthless as institutions. They produce useful probability estimates for elections, economic events, and geopolitical outcomes. The 2026 midterms showed prediction markets outperforming traditional polls with 91% accuracy across Senate races. That’s genuinely valuable.
But there’s a difference between “this market produces accurate signals” and “I can make money trading in this market.” The stock market produces accurate prices too. That doesn’t mean day traders beat index funds. The same logic applies here, except prediction markets don’t have an equivalent of “buy and hold” because every contract has an expiration date.
The honest framing: prediction markets are entertainment expenses for most participants, informational tools for observers, and profit centers for a small number of sophisticated operators. If you go in knowing that, you’ll at least lose money with your eyes open. Which is more than 69% of Polymarket traders can say.
What percentage of prediction market traders lose money?
According to a 2026 academic study analyzing 1.72 million Polymarket accounts and $13.76 billion in trading volume, 68.8% of users lost money. The top 1% of traders captured 77% of all gains, while over 100,000 accounts lost at least $1,000 since January 2025.
Are prediction markets gambling or investing?
The answer depends on who you ask. The CFTC classifies prediction market contracts as regulated derivatives, making them legal investment products at the federal level. Arizona prosecutors filed criminal charges against Kalshi in March 2026, arguing the platform functions as unlicensed gambling. The academic data shows most participants lose money in patterns more consistent with gambling than investing.
Is insider trading a problem on Polymarket?
Multiple documented cases of insider trading have occurred on Polymarket in 2025-2026, including a U.S. Army soldier using classified intelligence to profit $400,000 and Israeli Air Force members betting on military strike timing. Polymarket partnered with Chainalysis in April 2026 to implement blockchain surveillance and crack down on insider activity.
Can bots trade on prediction markets?
Yes, and they appear to dominate among profitable accounts. The Bloomberg and HEC Montreal analyses found that winning accounts disproportionately exhibit automated trading characteristics including high frequency, precise sizing, and rapid news response. Just 3% of traders drive most price accuracy on Polymarket, and many show bot-like patterns.
Are prediction markets accurate for elections?
Prediction markets demonstrated 91% accuracy across 2026 Senate races, outperforming traditional polling aggregators at 76%. However, this accuracy benefits observers reading the prices, not necessarily traders betting on outcomes. The accuracy comes from a small minority of informed traders whose profits are funded by the losing positions of the majority.
