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We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are hig

by vcf 5mo ago

We study trading gains and losses on Polymarket, the largest prediction market. Using 588 million trades ($67 billion in volume), we show that the gains are highly concentrated: the top 1% of users capture 76.5% of profits. Successful traders provide liquidity using limit orders that resolve favorably relative to realized outcomes while unsuccessful traders take liquidity using market orders. Monthly performance is weakly persistent, however, this may represent sample selection rather than skill. A detailed analysis of the trading behavior of the most successful accounts suggests that "insider'' trading is unlikely to explain the performance of the largest winners. Full dataset available at https://huggingface.co/datasets/vgregoire/polymarket-users https://huggingface.co/datasets/vgregoire/polymarket-users

wutwutwat 5mo ago
insider trading on events probably wouldn't show any trends, right? These are point in time events (they call them markets), but they are finite and short lived. An insider would be a one and done thing, so it would be pretty hard to spot them or trend any sort of month over month insider scheming imo. Also... > We study trading gains and losses on Polymarket, the largest prediction market This is not a natural thing to say and I fucking hate that it's impossible to know anymore if I'm wasting time replying to an AI/bot or not
- philipwhiuk 5mo ago
  I agree - you're not going to be an insider on a significant proportion of trades and it would be stupid to use the same account for more than a couple. Insiders are going to be earning large amounts in single trades, either by betting a lot when it's odds-on or a small amount when it's out the odds (for a large return). I think it's just bad tense, which I think makes it not AI amusingly.
- vcf 5mo ago
  Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural... I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.
  - eloisant 4mo ago
    When the abstract is limited, you don't add useless qualifiers like "the largest prediction market"
    - michaelt 4mo ago
      Some people feel strongly about defining jargon when using it - an article on here [1] the other day about Capture The Flag (CTF) hacking puzzle competitions was full of comments comparing the article didn’t say what CTFs were. [1] https://news.ycombinator.com/item?id=48157559 https://news.ycombinator.com/item?id=48157559
    - ashdksnndck 4mo ago
      This is a familiar style in abstracts. Weird as it sounds, it’s normal to have some language implying the reader is a hermit living in a cave. If it sounds like something an AI would say, maybe it’s because models have been trained on academic papers?
    - janalsncm 4mo ago
      It’s not a useless qualifier. Many readers might not know that Polymarket is the biggest now, and if at some future date it’s not the biggest anymore the statement makes it clear why they studied at this time.
  - hammock 4mo ago
    This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).
    - sokoloff 4mo ago
      Is that the case? I would expect long-term investors would make more profits from the stock market than market makers. If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?
- LPisGood 4mo ago
  For what it’s worth that’s a sentence I would write if that were my paper and I was writing the abstract.
  - wutwutwat 4mo ago
    Except this was a comment on hacker news, not an academic paper... on an article talking about prediction markets. The context already exists, and there isn't any reason to tack that onto the end of what was said, and it doesn't matter for that sentence or the entire comment. Just feels like something a agent being overly verbose/descriptive would say. Another possibility could be that SEO for LLMs is now a thing, and keyword stuffing or model manipulation is going to take subtle things like `We study trading gains and losses on Polymarket, the largest prediction market.` and interpret that as fact, in order to, idk what to call it, trick?, brainwash? the model into internalizing "polymarket is the largest" into its trained dataset and then proceeding to recommend polymarket to people when they ask about prediction markets, even if isn't true anymore at that time.
    - karlmedley 4mo ago
      The comment is the abstract of the paper verbatim. This is one of the authors posting their paper on HN, sharing their data, and answering questions. This not just normal and respectable behaviour, it's really cool.
redox99 4mo ago
The spreads on most markets always seemed like a hint that polymarket transferred wealth from the impatient that don't really understand how it works, to those that play mostly as patient market makers with just an educated guess. The problem is that volume is generally too low to make significant money.
- chmod775 4mo ago
  The only time I'd trade on that platform is when I have information others don't. I assume that is also true for those 1% farming suckers.
- superfrank 4mo ago
  I'm not saying this as an argument for or against prediction markets, but that's essentially what the vig is at traditional sportsbooks. Someone calculates what they think the odds of an outcome happening are and then they allow people to take positions on either side at worse odds than what they think the real odds are. As long as their prediction is correct, over time they make money. It's why putting $1 on a 50/50 bet on a sportsbook will usually only pay out around $1.91 instead of $2 if you win.
  - hammock 4mo ago
    Books pay handicappers as well to make the guesses so that cuts into the vig
  - Onavo 4mo ago
    Isn't that just a normal market maker?
graemep 4mo ago
That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.
- vcf 4mo ago
  Yes. It's not only that, as we also find very successful traders who take directional bets on elections and sports. But among the most successful traders, a large fraction are acting as market makers. Note that acting like one is not enough. We also find many traders acting as market makers among the least successful, yet they don't lose as much as the top winners do.
- zero_bias 4mo ago
  Actually it’s pretty explicitly stated, polymarket even have special docs section, "market maker guide"

by vcf 5mo ago

wutwutwat 5mo ago

insider trading on events probably wouldn't show any trends, right? These are point in time events (they call them markets), but they are finite and short lived. An insider would be a one and done thing, so it would be pretty hard to spot them or trend any sort of month over month insider scheming imo. Also... > We study trading gains and losses on Polymarket, the largest prediction market This is not a natural thing to say and I fucking hate that it's impossible to know anymore if I'm wasting time replying to an AI/bot or not

philipwhiuk 5mo ago
I agree - you're not going to be an insider on a significant proportion of trades and it would be stupid to use the same account for more than a couple. Insiders are going to be earning large amounts in single trades, either by betting a lot when it's odds-on or a small amount when it's out the odds (for a large return). I think it's just bad tense, which I think makes it not AI amusingly.
vcf 5mo ago
Not meant to sound like AI, but most academic journals limit abstracts to 100 words, so they rarely feel natural... I agree: insiders are hard to study because they are finite and short-lived. We're pretty confident there are insiders out there trading on Polymarket; however, our conclusion is that they don't account for a significant fraction of the total trading gains on the platform.
- eloisant 4mo ago
  When the abstract is limited, you don't add useless qualifiers like "the largest prediction market"
  - michaelt 4mo ago
    Some people feel strongly about defining jargon when using it - an article on here [1] the other day about Capture The Flag (CTF) hacking puzzle competitions was full of comments comparing the article didn’t say what CTFs were. [1] https://news.ycombinator.com/item?id=48157559 https://news.ycombinator.com/item?id=48157559
  - ashdksnndck 4mo ago
    This is a familiar style in abstracts. Weird as it sounds, it’s normal to have some language implying the reader is a hermit living in a cave. If it sounds like something an AI would say, maybe it’s because models have been trained on academic papers?
  - janalsncm 4mo ago
    It’s not a useless qualifier. Many readers might not know that Polymarket is the biggest now, and if at some future date it’s not the biggest anymore the statement makes it clear why they studied at this time.
- hammock 4mo ago
  This is true if the stock market as well. There is insider trading. But that vast, vast majority of profits are made by the market makers (citadel etc).
  - sokoloff 4mo ago
    Is that the case? I would expect long-term investors would make more profits from the stock market than market makers. If the market-makers are making vastly more than long-term investors (who are making trillions), who is coming in and venting off the multiple trillions to keep the system feeding long-term investors well while market makers gorge themselves?
LPisGood 4mo ago
For what it’s worth that’s a sentence I would write if that were my paper and I was writing the abstract.
- wutwutwat 4mo ago
  Except this was a comment on hacker news, not an academic paper... on an article talking about prediction markets. The context already exists, and there isn't any reason to tack that onto the end of what was said, and it doesn't matter for that sentence or the entire comment. Just feels like something a agent being overly verbose/descriptive would say. Another possibility could be that SEO for LLMs is now a thing, and keyword stuffing or model manipulation is going to take subtle things like `We study trading gains and losses on Polymarket, the largest prediction market.` and interpret that as fact, in order to, idk what to call it, trick?, brainwash? the model into internalizing "polymarket is the largest" into its trained dataset and then proceeding to recommend polymarket to people when they ask about prediction markets, even if isn't true anymore at that time.
  - karlmedley 4mo ago
    The comment is the abstract of the paper verbatim. This is one of the authors posting their paper on HN, sharing their data, and answering questions. This not just normal and respectable behaviour, it's really cool.

redox99 4mo ago

The spreads on most markets always seemed like a hint that polymarket transferred wealth from the impatient that don't really understand how it works, to those that play mostly as patient market makers with just an educated guess. The problem is that volume is generally too low to make significant money.

chmod775 4mo ago
The only time I'd trade on that platform is when I have information others don't. I assume that is also true for those 1% farming suckers.
superfrank 4mo ago
I'm not saying this as an argument for or against prediction markets, but that's essentially what the vig is at traditional sportsbooks. Someone calculates what they think the odds of an outcome happening are and then they allow people to take positions on either side at worse odds than what they think the real odds are. As long as their prediction is correct, over time they make money. It's why putting $1 on a 50/50 bet on a sportsbook will usually only pay out around $1.91 instead of $2 if you win.
- hammock 4mo ago
  Books pay handicappers as well to make the guesses so that cuts into the vig
- Onavo 4mo ago
  Isn't that just a normal market maker?

graemep 4mo ago

That sounds as though the successful traders are informally acting as market makers and are rewarded for doing that.

vcf 4mo ago
Yes. It's not only that, as we also find very successful traders who take directional bets on elections and sports. But among the most successful traders, a large fraction are acting as market makers. Note that acting like one is not enough. We also find many traders acting as market makers among the least successful, yet they don't lose as much as the top winners do.
zero_bias 4mo ago
Actually it’s pretty explicitly stated, polymarket even have special docs section, "market maker guide"