How To Get Away With Insider Trading: A Deep Dive Into Prediction Markets

Opinion

Photo source: ccn.com

Prediction markets are trading platforms where participants trade in contracts whose payoff depends on unknown future events, (Wolfers & Zitzewitz, 2004) with categories including sports, politics, elections, and more. The traded contracts are priced to reflect the conviction of participants regarding the likelihood of a certain event occurring. Buying contracts pertaining to a certain outcome drives its price higher to reflect the consensus belief that it has a higher probability of occurring. 

Traders and self proclaimed experts view prediction markets as prophetic clairvoyants that are the driving force behind the future of information finance and forecasting analysis. The two major players in the prediction market sphere – Kalshi and Polymarket share certain commonalities, albeit being different in their composition (the former being a regulated platform and the later a decentralised, legal grey area).  Shayne Coplan, CEO of Polymarket, referred to prediction markets as “the most accurate thing we have as mankind” for forecasting future events (Park, 2025). Kalshi CEO, Tarek Mansour claimed PMs to be an “antidote” to misinformation (Schmidt, 2026). A notable addition, Jimmy Xue, COO of Axis projected that prediction market data will soon become the “primary truth signal”, replacing traditional polling and forecasting methodology (Park, 2025). 

In the last few years, prediction markets have successfully permeated the mainstream conscience and economy; an expansion which was fueled by Kalshi’s successful gambit against the Commodity Futures Trading Commission (CFTC) in May 2025, resulting in legal recognition (MarketScreener, 2026); as well as the recent notoriety achieved through controversial trade contracts regarding military operations such as the US-Israeli strikes in Iran and the capture of the Venezuelan President (Mitts & Ofir, 2026) – thus raising concerns regarding integrity and insider trading. Despite the ongoing breakthroughs in the world of prediction markets, the area remains a largely unregulated legal ‘grey zone’ situated somewhere between financial trading and gambling (KPMG, 2025). 

Prediction markets are able to monetise information using market mechanisms and provide a forum for wagering on real world outcomes (Schmidt, 2026). Here is where the line between trading and gambling gets blurry, challenging the popular rhetoric labelling PMs as “forecasting tools”. Mansour goes as far as to ideate a future where any circumstance and difference of opinion can be monetised to create a tradable asset (Schmidt, 2026). 

Prediction markets do present an intriguing opportunity, one that even the Wall Street giants Nasdaq and Cboe propose to capitalise on. In March of 2026 the exchange filed a proposal with the U.S. Securities and Exchange Commission to list yes-or-no binary bets on the Nasdaq-100 in light of the growing interest in event based markets (Basil, 2026). Other players are embedding prediction markets along with pre-existing features. In December 2025, Crypto.com launched a prediction market platform in partnership with sports apparel firm Fanatics; another crypto based exchange Gemini, received the CFTC greenlight to launch its event contracts platform Gemini Titan (Park, 2025). In January 2026, Coinbase launched its PM platform in partnership with Kalshi (Laurenzi, 2026). There is clearly strong public and institutional interest in the predictive markets space. Given the prevailing interest and the regulatory inertia, prediction markets could become a new asset class sitting alongside stocks, options, crypto etc. 

However, legislative commotion regarding integrity concerns, misuse of material non-public information and market manipulation produce far from a sound conclusion. Monetisation of real world events creates public incentive to exploit classified information. Furthermore, and more unsettlingly, prediction markets create a monetary incentive to manufacture the events being predicted. This accompanied with the insubstantial regulation – PMs fall significantly short of being the “truth telling machines” stakeholders claim they are and behave as a tool to distort reality rather than reflecting it (Packin & Rabinovitz, 2026). 

Given appropriate and adequate regulatory measures, PMs could eliminate nefarious forms of participation. Prediction markets are good at aggregating information efficiently and often more accurate than experts, but they simultaneously reward private/inside information financially. There’s a fundamental trade-off between information efficiency and discovery versus exploitation of private information. We can see it happening in real time, with the recent arrest of the trader who bet on the capture of the Venezuelan president Nicolás Maduro, and profited an alleged USD $409,000 (U.S. Department of Justice, 2026). 

Even then, evidence suggests prediction markets become informative only once they reach sufficient scale. The integrity of PMs being contingent on liquidity and participation (Mitts & Ofir, 2026). A 2026 study shows early stage Polymarket was easily moved by small trades and prone to pricing errors (Tsang & Yang, 2026); due to weak liquidity every small influx of funds was felt greatly. However, as participation increased and liquidity improved, prices became more efficient. Over time as participation grows, price manipulation decreases because other traders are able to counteract it. The market mechanics of a PM are starkly different to those of a traditional share market, outcomes are not determined by laws of supply and demand. Instead, human behaviour plays a huge role, the inherent unpredictability of human behaviour translates into market volatility — that is until the participation becomes substantially large and the behavioural volatility noise is filtered out. Moreover, in contrast with traditional share markets, prediction markets are not about “time in the market”. PMs discard the age-old financial investment adage. There is no amount of “time” in the market that will allow an investor to recover their losses or multiply their gains once an outcome has already occurred. With traditional share markets there is always room for recovery, however PMs do not offer that leniency. 

This begs the question, if the prophetic capabilities of prediction markets are contingent on mass participation coupled with the fact that they offer little to no room for recovery in case of bad investment —  who exactly stands to benefit? 

The current climate is a transitional one, trading platforms and individuals alike are trying to get ahead of the curve and capitalise on this ambiguity while lawmakers play catch up. It is a matter of when, not if, this gap in the market is patched up with laws and regulations. It remains to be seen whether prediction markets could be a longstanding addition to the conventional and accessible investment portfolio. Right now, PMs are not a feasible pathway for the average investor as they only reward those with insider information, dumb luck or clairvoyance, and even then the glory may be short-lived.  Case in point — earlier in April 2026, Gannon Van Dyke, the US soldier who bet on the capture of Maduro was arrested and charged for unlawful use of confidential government information for personal gain and several counts of fraud (U.S. Department of Justice, 2026). 

If only Van Dyke knew how to get away with insider trading.

Until next time,

WIF 💙

Written by Srishti Agrawal

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Journal Article

Wolfers, J., & Zitzewitz, E. (2004). Prediction markets. Journal of Economic Perspectives, 18(2), 107–126. https://doi.org/10.1257/0895330041371321

News & Industry Articles

Basil, A. K. (2026, March 2). Nasdaq follows Cboe joining world of 'binary bets' as prediction market craze hits Wall Street. CoinDesk. https://www.coindesk.com/markets/2026/03/02/nasdaq-follows-cboe-joining-world-of-binary-bets-as-prediction-market-craze-hits-wall-street

Laurenzi, N. (2026, January 27). Coinbase rolls out prediction market to U.S. customers. CoinDesk. https://www.coindesk.com/markets/2026/01/27/coinbase-rolls-out-prediction-market-to-u-s-customers

MarketScreener. (2026, April 7). Prediction markets go mainstream as Polymarket, Kalshi, and others drive $25bn monthly volumes. MarketScreener. https://www.marketscreener.com/news/prediction-markets-go-mainstream-as-polymarket-kalshi-and-others-drive-25bn-monthly-volumes-ce7e51d3de89f42c

Schmidt, H. (2026, January 21). Accounting for the explosive growth in prediction markets. International Banker. https://internationalbanker.com/finance/accounting-for-the-explosive-growth-in-prediction-markets/

Park, D. (2025, December 31). Prediction markets explode in 2025: Inside the Kalshi-Polymarket duopoly and challengers. The Block. https://www.theblock.co/post/383733/prediction-markets-kalshi-polymarket-duopoly-2025

Academic & Legal Sources

Mitts, J., & Ofir, M. (2026, March 16). From Iran to Taylor Swift: Informed trading in prediction markets [Working paper]. Columbia Law School; University of Haifa. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6426778

Packin, N. G., & Rabinovitz, S. (2026). Prediction markets as a public health threat. Science, 392, 257–260. https://doi.org/10.1126/science.aee3932

Tsang, K. P., & Yang, Z. (2026, March 3). The anatomy of Polymarket: Evidence from the 2024 presidential election [Working paper]. arXiv. https://doi.org/10.48550/arXiv.2603.03136 

Government & Regulatory Sources

KPMG. (2025). The current state of prediction markets. https://kpmg.com/us/en/articles/2025/current-state-of-prediction-markets.html

U.S. Department of Justice. (2026, April 23). U.S. soldier charged with using classified information to profit from prediction market bets [Press release]. https://www.justice.gov/opa/pr/us-soldier-charged-using-classified-information-profit-prediction-market-bets