Why Almost Everyone Loses—Except a Few Sharks—on Prediction Markets
Original authors: Caitlin Ostroff, Katherine Long, Neil Mehta, WSJ
AididiaoJP, Foresight News
John Pederson, 33, is currently unable to work and is recovering from a car accident; the former Outback Steakhouse chef is running out of savings. The prediction market platform Kalshi may offer a quick solution—he took out a variable-rate loan and began placing bets.
It started off smoothly. Pedersen turned about $2,000 into nearly $8,000 by betting on the daily snowfall in Detroit, the city where he lives. He then invested the funds in sports event trading, using AI-assisted strategies that, according to a review of his account records by The Wall Street Journal, eventually reached $41,000.
Then he made his boldest bet yet: wagering all $41,000 that a celebrity would say a specific word on television—and lost it all.
Pedersen is not the only one who came away empty-handed from markets where you can bet on anything—from sports and celebrities to news events.
Kalshi and its competitor Polymarket market themselves as tools that can change ordinary people’s lives—implying everyone has a fair shot at making a big profit. “I could barely afford rent, but through Kalshi’s predictions, I earned two years’ worth,” a woman says excitedly in a Kalshi ad on TikTok.
But for most users, reality is completely different.
In contrast, according to analysis of platform data and interviews with traders by The Wall Street Journal, retail traders are consistently losing money, while a small group of experienced professional players—including trading firms with access to vast data resources—are profiting from their losses.
The Wall Street Journal found that 67% of profits on Polymarket flowed to just 0.1% of accounts, meaning fewer than 2,000 accounts collectively netted nearly $500 million. The Journal analyzed 1.6 million accounts that traded on Polymarket since November 2022; the platform has at least 2.3 million total accounts.
Kalshi is no different, with far more losers than winners. Spokesperson Elizabeth Diana said that, based on data from the past month, there are 2.9 losing users for every winning user. She noted that this ratio may change as the platform grows. The company does not publicly disclose comprehensive data on user profits or the total number of users.
According to data from the analytics firm The Block, the total trading volume on the two platforms surged to $24.2 billion in April, up from $1.8 billion a year earlier.
Supporters argue that these markets are not gambling, but rather leverage collective intelligence to accurately predict future events. Federal Reserve research shows that Kalshi is an effective tool for forecasting economic trends.
Traders are paying for third-party big data streams to gain an edge. Computers use data and algorithms to predict price movements and manage risk far faster than any human. Professional participants also leverage scale to execute frequent, strategic trades—sometimes tens of thousands per day—and profit from tiny price fluctuations, requiring focus and discipline rare among retail users.
Michael Burrows, a former professional poker player with a background in statistics, says: "Retail traders have no chance." He places 60 trades per minute on Kalshi and modifies his bid and ask quotes 30 times per second.
Diana said that many financial markets exhibit similar wealth concentration, and users making money on Kalshi outpace those in day trading or traditional sports betting. She said Kalshi no longer runs ads saying “Help me pay rent.”
A Polymarket spokesperson declined to comment on the Wall Street Journal's analysis.
Polymarket has a data partnership with Dow Jones, the publisher of The Wall Street Journal, and this analysis uses only publicly available data.
Using the example of Pedersen, the unemployed chef who lost everything, he fell into the category of "suckers": markets that bet on whether someone will say a specific phrase.
Professional traders say they avoid this type of betting because it’s unpredictable, and even millions of dollars worth of data cannot provide a reliable edge.
According to a Wall Street Journal analysis, the actual payout frequency of market bets is far lower than expected. Retail bettors face greater risks than they realize, partly due to the "underdog bias"—bettors overestimate low-probability events due to excitement.
Kalshi's prediction markets have seen monthly trading volumes far exceeding Polymarket's, with explosive growth since mid-2025. These bets are especially popular among the platform's young user base—including influencers who promote them on social media livestreams and videos showcasing their wins.
John Pedersen has been living outside a homeless shelter in Detroit since losing money on a Kalshi investment. © Emily Rose Bennett for The Wall Street Journal
People smarter than you
For all types of bets, Polymarket and Kalshi’s marketing has been simple—users can monetize their known knowledge and make money quickly—a claim that has gone global.
However, an analysis by The Wall Street Journal found that more than 70% of Polymarket users are losing money. A working paper by researchers from France and Canada last month reached a similar conclusion, finding that nearly all profits from prediction markets flow to sophisticated traders, while reckless and retail traders bear the losses.
An analysis by The Wall Street Journal of Polymarket trading data shows that average users lost between $1 and $100, while the bottom 10% of performers lost an average of $4,000 each.
Some people make emotional decisions—following their gut or placing bets based on information from public sources.
A man in Connecticut who described himself as having a gambling problem bet on the Super Bowl on Kalshi and lost $2,000 in one day—all during the tense fourth quarter. A 31-year-old man in Indiana said the trading felt “like a drug,” and in the first few months of this year, he bet on sports events on Kalshi nearly every day, losing about $5,000.
In contrast, prediction markets are increasingly attracting companies with dozens of employees, spending millions of dollars on professional sports and financial data, and running trading algorithms. They aim to outperform students, recreational gamblers, and other low-volume traders who make up the majority of platform users.
In traditional gambling, the house sets odds, accepts bets, and pays out winners. In prediction markets, there is no "house"—users trade directly with each other. The platform only charges trading fees, which vary based on contract price, market type, and other factors.
In an office in SoHo, a college dropout stares at a computer screen, watching the millions of dollars flowing from retail traders betting on Bitcoin’s price movements.
Samuel Wood - Solovey dropped out of Princeton University this year and received a $500,000 check from Alliance Capital, a crypto startup accelerator backed by prominent Silicon Valley investors, including crypto entrepreneur Balaji Srinivasan.
He took math classes at the University of California, Berkeley in high school, and took a year off before Princeton to trade cryptocurrencies. Now, he and four friends have moved to New York to trade prediction markets full-time, betting on the future prices of sports, politics, and cryptocurrencies.
In the interview, he said: "Our only competitors are market makers." He was referring to other companies that, like them, continuously provide buy and sell quotes. He declined to disclose the company’s profits or losses, but stated that it has deployed between $500,000 and $1 million on Polymarket, Kalshi, and other small prediction markets.
Former professional poker player Bos has earned over $668,000 on Kalshi, primarily from sports betting, since he began trading seriously about three months ago. In addition to trading speed, he is extremely precise in pricing his buy and sell quotes.
He said: "You'll find that sports is the easiest way to make money." "Sports attracts all these 'pathological' young men, I think." He clarified that "pathological" refers to gambling addicts.
He observed on Kalshi that a large number of retail traders are placing 'Yes' bets on what they hope will happen. 'This is completely different from how people trade securities on crypto or stock platforms.'
Jonathan Stoll-Ryan, a college student from Charlottesville, Virginia, runs a company that trades cryptocurrency prices on Kalshi, ranking among the top five in trading volume. © Laura Thompson for WSJ
Stall-Ryan’s company pays third parties for real-time data and uses algorithms to execute tens of thousands of trades per day. © Laura Thompson for WSJ
Jonathan Stoll-Ryan, founder of another company composed of about 12 employees—all college students like him—is one of the top five traders on Kalshi by volume of cryptocurrency price bets. The company spends over $200,000 annually on real-time data feeds, AI coding agents, and servers, executing tens of thousands of real-time trades daily using algorithms.
Stoll - Ryan saw someone casually betting on Bitcoin prices on Kalshi while he was at the University of Virginia with fraternity members. He thought to himself, "That guy is going to lose money."
These professional traders mostly serve as market makers. Kalshi and Polymarket say they will refund a portion of the market makers' fees, and sometimes even pay them to provide liquidity.
The quantitative trading firm Susquehanna International Group became Kalshi’s first major institutional market maker in 2024. According to professional traders monitoring Kalshi’s order book, the firm trades hundreds of millions of dollars per week through Kalshi. Its account is private, so specific profits are unknown. Susquehanna declined to comment.
Another quantitative trading firm, Jump Trading, is also active on Polymarket and Kalshi. In mid-April, Jim Esposito, president of Citadel Securities, said at a Semafor event that the company is “closely monitoring” the development of prediction markets. Some traders who previously bought high-risk options contracts are now turning to prediction markets.
Jeff Yass, co-founder of Susquehanna, said on a sports betting podcast in 2020: “All sports betting, all poker, all options trading is essentially betting against people who are dumber than you.” He described his role in supporting the development of prediction markets on the same podcast as “a mission from God.”
On one hand, he believes Americans should be able to legally bet on sports even in states where it is prohibited; on the other hand: «I expect to make a lot of money.»
Stoll - Ryan on the University of Virginia campus. His company employs about a dozen college students. © Laura Thompson for WSJ
Find easy money
The platform offers contracts where users can ask "yes/no" questions about future events. These contracts typically pay out $1 if correct and $0 if incorrect. The contract price reflects traders' assessment of the probability of the event occurring.
For example, if a prediction market contract is trading at 41 cents, it implies a 41% probability of the event occurring. If you’re correct, the contract you bought for 41 cents will pay out $1; if you’re wrong, you lose your initial investment.
The contract price fluctuates continuously before settlement due to market forces from buyers and sellers. Traders profit from small price movements, just like Wall Street traders.
Many naive participants in prediction markets are repeating the mistakes of speculators seeking easy money in financial markets. Decades of research show that day traders rarely make a profit. In recent years, many retail traders have lost everything on highly volatile meme stocks fueled by social media.
Kalshi and Polymarket’s U.S. operations (recently launched to a small group of early users) are regulated by the Commodity Futures Trading Commission (CFTC) and state that their platform trading resembles other regulated financial markets. The vast majority of Polymarket’s activity occurs on its offshore platform, which technically prohibits access by U.S. users but can be easily bypassed using a VPN.
Critics say these markets are vulnerable to issues such as insider trading. Recent examples include alleged insider trading related to U.S. military operations in Venezuela, Google announcements, and congressional elections.
CFTC Chairman Michael Silber defended prediction markets and clarified the federal agency’s jurisdiction over these platforms. The agency has taken action against alleged insider trading and signaled plans to strengthen government enforcement.
Polymarket states it has collaborated with the Department of Justice to combat insider trading. Kalshi prohibits insider trading on its platform and has penalized several violators in recent months.
Adi Rajapalayam, a former Kalshi employee, last year referred to retail traders as "fish" (gambling slang for inexperienced, easily losing players) on Substack. In an interview, he said that while he still generally believes this to be true, he also believes that the presence of uninformed traders on prediction markets strongly incentivizes more sophisticated traders to participate, leading to more accurate predictions.
"Everyone who places a bet believes they are the one with more information," he said. "Over the long term, the more correct person will make more money. No one is forced to do this."
$41,000 bet
Before engaging with the mention market, Pedersen’s experience on Kalshi had been relatively smooth. “I’m deeply interested in finance,” he said. “I’ve been looking for ways to sharpen my edge, if you will.”
Mention the trading volume of the market
The core question in prediction markets comes down to one thing: Will a public figure say a specific word? This year, Kalshi users have wagered over $28 million on whether Trump will say words like “cartel,” “Somali,” or “hockey” during his State of the Union address. According to The Block data, Kalshi users wagered nearly $181 million on mention markets in February.
An analysis by The Wall Street Journal of Kalshi's data shows that the actual payout rate of the markets is significantly lower than what bettors expected based on the listed odds.
The Wall Street Journal analyzed over 35,000 completed prediction markets on Kalshi and found that, on average, "Yes" bets priced at a 50% chance of winning actually paid out at a rate of about 40%. Since contract prices should reflect probability, these bettors were effectively overpaying.
Analysis reveals that these market trades often exhibit a long-shot bias and frequently result in losses. On average, traders who place a "Yes" bet at the first price they see in a market—a common pattern among retail traders—lose 11% of their stake. According to research from the University of Nevada, Las Vegas, this return is worse than that of most Las Vegas slot machines.
Kalshi spokesperson Diana acknowledged that the mention market exhibited expected biases, but stated that the mention market cannot represent the platform’s overall pricing nor is it an appropriate subject for such pricing analysis. She added that Kalshi’s analysis showed that, in the four hours leading up to the event, the mention market’s pricing was more accurate.
Kalshi encourages traders to livestream their trading activities during events, with both streamers stating this is intended to increase market participation. In a April report on prediction markets, Bank of America analysts wrote: “Livestreams of mentioning markets on social media frequently go viral and boost Kalshi’s brand awareness.”
In January, Pedersen bet his entire $41,000 profit that rapper A$AP Rocky would say the word “rapper” on The Tonight Show Starring Jimmy Fallon—where the star recently portrayed a rapper. He had the chance to win over $168,000.
However, the version aired by NBC cut out that segment. According to Kalshi’s market rules, only what is said in the televised version counts.
Pedersen said in his own video that this rule on the platform’s website was not obvious and that he did not see it. (Kalshi later updated its interface to make the market rules more prominent.)
Pedersen has lost everything and has almost no other resources to rely on. He currently lives in a homeless shelter in downtown Detroit, but he says he recently received a job offer for a mortgage sales position.
He said that once he gets back on his feet, his goal is to enter the financial industry to support his music career. Will he return to prediction market trading? “Maybe,” he said. “I’d rather spend my time on more regulated markets.”
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