Enter prediction markets, sites that let users bet on pretty much anything. Most of those users lose. But a savvy few have made a fortune using basic math.
Prediction sites like Polymarket and Kalshi offer many of the same markets. And usually, they post the same odds.
In March, Kalshi had Gavin Newsom’s odds of winning at 29 percent, but Polymarket had them at 24 percent. These disparities are good news, if you’re gambling.
Taking both sides of the same bet is usually a wash. But not when there’s a price disparity.
In the example with Mr. Newsom, imagine you bought “Yes” on Polymarket, for 24 cents, and also “No” on Kalshi, for 71 cents.
If Mr. Newsom wins, then Polymarket owes you a dollar.
If he loses, then Kalshi owes you a dollar.
One of these bets must be a winner — so you’re guaranteed to make a dollar. But because of the disparity, you’ll only have spent 95 cents on the bets.
If this sounds like printing money, that’s because it basically is. It’s called “arbitrage,” long a favorite strategy of quantitative traders trying to juice profits from the stock market with minimal risk. You buy something at a cheap price, and simultaneously sell it at a more expensive price. It’s a win-win.
Some bettors are now using the same strategy to rake in thousands of dollars from online prediction sites. Moving quickly, they can take advantage of price gaps between exchanges like Polymarket and Kalshi, or even between the prediction sites and sports-betting sites like DraftKings and FanDuel. The wider the spread, the bigger the potential profit.
Ryan Noel, 25, has built a career arbitrage-betting (or “arbing,” as he calls it) during sports games. He regularly makes more than 1,000 arbitrage bets per week on prediction sites like Polymarket, Kalshi, Novig and ProphetX, in addition to online sportsbooks, he said.
“Software shows me the price of every sort of market at the same time,” said Mr. Noel, who started arbing in late 2023, while working as an actuary, before quitting his job last year. So far, the strategy has netted him more than $1 million, he said. “I don’t care about sports at all. I think watching sports is the most boring thing you can do with your time. I’m a mathematician.”
Math skills are essential — but so are the right tools, said Aidan Gawlowski, a Chicago-based college student who started arbing last year before coding his own software to hunt down prediction-market price discrepancies. Mr. Noel buys software from OddsJam, Pick the Odds and Bookie Beats that tracks price changes across thousands of markets, flagging the possible arbitrage.
“I figured out that there was this opportunity,” said Mr. Gawlowski, 21, who said he started betting when he was 14. “You’re mathematically guaranteed to make money.”
Some moneymaking opportunities last longer than others. The arbitrage with Mr. Newsom? It existed, unexploited, for weeks. During that period, you could’ve bought “Yes” on Polymarket and “No” on Kalshi, for a roughly 3 percent profit. (The probability spread of around five percentage points, minus Kalshi’s transaction fee.)
But there are a couple of reasons that opportunity was an anomaly. For one, the market doesn’t resolve for two years. That’s a long time to tie up money you could invest elsewhere, said Abraham Wyner, a professor of statistics and data science at the Wharton School at Penn. There’s also additional risk that some bets carry more than others: What if the election gets weird, and the sites don’t agree on what defines a Newsom nomination? Then, you might lose both sides of your bet.
That was enough to deter Mr. Noel and Mr. Gawlowski, who spend most of their time arbing on sports. There are loads of sites that let users bet on sports, meaning more chances for price discrepancies. And during games, odds must constantly update to keep up with live developments. That process takes time, which can translate into arbitrage opportunities.
“You can make a significant amount of money on a big N.B.A. day,” Mr. Gawlowski said. During sports games, Mr. Noel’s price-tracking programs catch an arbitrage opportunity every minute or so, he said.
These discrepancies often emerge when casual users, betting based on vibes, move a market just a hair out of alignment. Then arb bettors pounce, and their actions end up evening the odds across the sites again.
Taking advantage of these short-lived opportunities is hard enough for you and me. But the window is closing even for bettors like Mr. Noel and Mr. Gawlowski, as big financial institutions get in on the action with automated bots that can trade faster than any human. [...]
“Back in 2022, these arbitrage opportunities would last 30 seconds,” said Alex Llewellyn, 36, a professional sports bettor. “These days I execute bets in two to five seconds. And instead of 8 percent arbs, you generally see 4 to 5 percent.” [...]
Prediction sites, awash in Wall Street money and bots, are heading toward the same fate as other major financial markets. One-tenth of the top one percent of accounts on Polymarket rake in more than two-thirds of the profits, a Wall Street Journal analysis found.
“You’re not betting against Joe Schmo anymore,” said Alex Monahan, the founder of OddsJam. “You’re betting against a quant firm with infinitely better technology than you.”
by Evan Gorelick and Katherine Chui, NY Times | Read more:
Image: uncredited
[ed. Forget the opioid crisis - so yesterday. These days everybody's got a gambling addiction. Here's a different form of arbitrage: Net Gain (NYT):]
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For the first game of the N.B.A. finals, my friends and I went to a bar offering a deal that seemed too good to be true: If the Knicks won, the bar would cover every customer’s tab, up to $100.As tipoff approached, young people variously clad in starched button-downs and Brunson jerseys galloped from nearby Midtown offices for a chance at free booze. The line snaked around the block, and the bouncer made a show of blocking the front entrance. People screeched at one another. My buddy, already inside, shooed me in through a side door. (I heard someone whine, “Why does he get to go in?”)
Three hours later, when the Knicks overcame a 14-point deficit to take down the Spurs, strangers in the crowd were hugging and high-fiving. Outside, a passing garbage truck honked its horn in celebration. The entire city seemed to be shouting with joy. And at the Jeffrey, which bills itself as a neighborhood spot for “craft beer, cocktails and bites,” 726 beers, 385 cocktails and 175 smash burgers were on the house.
Over the hedge
When someone hands you a freebie, by all means: Take it. But you and I both know there ain’t no such thing as a truly free lunch. So while downing drinks, I kept asking myself whose money I was taking.
Turns out, it belonged to Kalshi users who’d bet on San Antonio — in other words, deadbeats and turncoats who had it coming. (Kidding! Kind of.) Before the game, the bar’s owner, a 50-year-old corporate lawyer, had used the prediction market to bet $5,000 on the Knicks. Since the Spurs were the favorites, that position netted him around $8,000 when New York prevailed — enough to cover nearly everything the crowd had consumed. If the Knicks had lost, the bar would’ve been out the $5,000, but it could have covered its losses with all those drinks and smashburgers. (Plus the free publicity — you’re welcome.)
