A recent scandal involving a Green Beret who bet on a classified US raid may be more than just an isolated incident, according to a new study. The research suggests that this individual may be an extreme example of the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of traders suffer losses.
The study, conducted by researchers from London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025. The findings indicate that a mere 3% of traders are responsible for the majority of price discovery, meaning they are the ones who drive prices towards the correct outcome. These traders consistently demonstrate an ability to predict outcomes and move prices in the right direction, whereas the remaining 97% of traders do not. Instead, they provide liquidity and generate volume, but ultimately end up on the losing side of trades against the informed minority.
The challenge lies in distinguishing between skill and luck, as many traders may achieve significant winnings by chance alone. To address this, the researchers simulated each trader's bets 10,000 times, keeping all variables constant except for the direction of the trade.
This allowed them to establish a benchmark for what each trader's profits would look like without any real edge. The results show that among the biggest winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance over time. The activity of skilled traders improves market accuracy, with prices moving closer to the correct outcome, especially in the final stages before resolution.
They are also the first to react to new information, adjusting their positions in response to events like Federal Reserve announcements or corporate earnings. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. The study highlights the risk of insider trading, citing the example of the US removal of Nicolás Maduro from power in Venezuela.
In the days leading up to the operation, three newly created Polymarket accounts placed unusually large bets on the contract, which ultimately yielded over $630,000 in profits. While there is no evidence of wrongdoing, the incident underscores the potential for insider trades to manipulate prices.
The research challenges the notion that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they work because of the presence of informed traders.