Study Reveals Only a Small Percentage of Traders Drive Prediction Market Accuracy

A recent scandal involving a Green Beret arrested for betting on a classified US raid may be more than an isolated incident, according to a new study. The research suggests that this individual may be an extreme example of a small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of traders incur losses around them. The study, conducted by researchers from the London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket between 2023 and 2025. The findings indicate that just 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the correct direction. In contrast, the remaining 97% of traders primarily provide liquidity and generate volume, but ultimately end up on the losing side of trades against the informed minority. The researchers used a novel approach to distinguish between skill and luck, rerunning each trader's bets 10,000 times with the same parameters but with the direction of the trade determined by a coin flip. 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% consistently 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, where three newly created accounts placed unusually large bets on a contract related to the event, making over $630,000 when the raid occurred. While insider trades can have a significant impact on prices, they are rare and concentrated in a handful of events, and most of the time, the market's accuracy depends on repeat traders who consistently outperform.