Hidden Profits: Unveiling the Arbitrage Battle in Prediction Markets, How Ordinary People Can Seize Million-Dollar Opportunities?

Author: Changan I Biteye Content Team

In the prediction market, the essence of the game is not the truth, but the pricing deviation.

For professional traders, Polymarket is more like an alternative financial hunting ground composed of probabilities, odds, liquidity, and information asymmetry.

Some bet on intuition, others follow the crowd based on emotions; however, 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 the prediction market

• Multiple real arbitrage cases to see how experts make money

• Whether ordinary players still have opportunities in a highly competitive environment

I. Five Major Schools of Arbitrage: From Mathematics to Manipulation, Which One Are You?

1️⃣ "Pick Up Money" Arbitrage Within the Platform: When YES + NO < 1

Principle: Utilize the mathematical property that binary options must settle at 1, monitoring moments when the total price of YES and NO is below 1, while simultaneously buying positions on both sides. Profit from the price difference upon settlement.

Example: At a moment when the total is 0.97, buy positions on both sides. Regardless of the outcome, holding until settlement guarantees a $1 payout, with the 0.03 difference being the profit.

⚠️Tip: Currently extremely competitive, dominated by high-frequency bots, making it difficult for retail investors to find opportunities.

2️⃣ Cross-Platform Arbitrage: Rule Differences Are Opportunities

Principle: Capture price differences for the same event between different prediction platforms (e.g., Polymarket, Kalshi, Opinion Labs, Limitless, etc.), buying low and selling high to lock in profits.

Example: On Polymarket, an event's Yes price is 45¢, while the equivalent No price on Kalshi is 52¢ → Lock in the price difference.

⚠️Tip: Different rules/oracles on both platforms may lead to different settlement outcomes.

3️⃣ Information "Front-Running" Arbitrage: 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) exceeds expectations, the algorithm would clear all sell orders for Treasury futures or the S&P 500 index within 10 milliseconds.

⚠️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 television broadcasts.

4️⃣ 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 deviation in market pricing of probabilities for each option.

⚠️Tip: Essentially, this uses mathematical probability distributions to ensure certainty in profits when most outcomes occur, while still maintaining break-even or only incurring minimal losses in the worst-case scenario.

5️⃣ Market Maker Arbitrage on Price Spreads: 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 with a buy price of 0.3 and a sell price of 0.7, with a difference of 0.4. Buy at 0.31 and place a sell order at 0.69 to capture the spread profit.

⚠️Tip: Keep an eye on market order book data, but be cautious of market sentiment/news causing one-sided trends; choose familiar sectors for operations.

II. Real Case Review: How Top Traders Made Millions on Polymarket?

1️⃣ "Statistical" Arbitrage on the Number of Musk's Posts

There are many continuous markets in the prediction market with ample historical data for backtesting.

For example, in 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 potential variable factors, traders can buy when probabilities significantly exceed expected ranges.

In addition, there are many similar markets in the prediction market. Studying NBA teams' home and away performances, average points scored, and losses, and using mathematical models to calculate such data for betting.

2️⃣ Violent Manipulation Arbitrage in 15-Minute Markets (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 of tokens is shallow, allowing small amounts of capital to cause price fluctuations.

He bought "up" on PM's XRP 15Min price prediction, even disregarding odds to forcefully sweep the market.

Just before the 15 Min prediction window settled, he instantly raised the XRP spot price with $1 million on Binance, causing the XRP 15 Min K-line to close up.

Currently, a4385's total profit on Polymarket is 280K, with an average cost of around $6,000 per pump.

If you pay close attention, you might occasionally notice that the correlation between XRP's price and probability decreases during weekend periods. The 15 Min line closes down, but the probability is at 0.5, indicating that funds are manipulating the market.

This is an extreme case of exploiting structural vulnerabilities in the prediction market.

3️⃣ 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 combined probabilities of "Yes" and "No" fall below 1, he buys both.

By employing stable position management and executing high-frequency repeat operations, he converts small pricing deviations into scaled profits, averaging $17 profit per trade.

4️⃣ 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 such as politics and macroeconomics.

During major news events, he quickly analyzes the impact of events on related markets and decisively builds positions in the direction of the trend.

When market sentiment slows or 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 considered one of the most anticipated games globally, and any news regarding its development progress or release date generates significant 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, so 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 without waiting for settlement, is the closest to a professional trader's mindset in the prediction market.

5️⃣ Reversal Trading: Betting on Market "Overconfidence" (Total Profit: 6K)

There is always a possibility of reversals in the prediction market, and a group of traders specializes in betting on these reversals.

According to Dune's data: The accuracy rate on Polymarket is 95.4% within 4 hours before settlement, 89.4% within 12 hours, and 88.2% within 1 day.

Thus, this group of traders specifically targets such markets to buy the possibility of reversals, usually buying at prices 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:

1️⃣ Stay Away from the Battlefield of Bots

Due to the mainstreaming of Polymarket, simple Yes + No < 1 arbitrage has become a game among bots.

2️⃣ 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 for betting, engaging in subjective trading of pricing deviations.

3️⃣ Dynamic Profit Taking, Never Be Greedy

The odds in the prediction market are dynamic; once your judgment is reflected by the market, the advantage has already been realized. Taking profits early greatly improves capital turnover for later retail investors and avoids disputes during final settlement.

In Conclusion: Cognitive Bias Is Your Arbitrage Space

The prediction market is 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 chance to become a long-term winner in the game of probabilities.

The prediction market does not bet on the truth, but on cognitive biases. Are you ready?