A recent scandal involving a Green Beret arrested for betting on a classified U.S. 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 the small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of participants incur 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, consistently predicting outcomes and moving prices in the right direction. In contrast, the remaining 97% of traders provide liquidity and generate volume but tend to be on the losing side of trades against the informed minority.
To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, using the same markets, moments, and dollar amounts but with the direction determined by a coin flip. The results showed that among the biggest winners by raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance. The study also found that when skilled traders account for a larger share of trading, prices tend to move closer to the correct outcome, especially in the final stages before resolution. Furthermore, these traders are often the first to react to new information, such as Federal Reserve announcements or corporate earnings, while other traders exhibit little consistent response.
However, the same edge that makes skilled traders valuable to price discovery raises concerns when they may be acting on non-public information. The paper highlights the risk of insider trading, citing the example of the U.S.
removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the contract before the event. The accounts collectively made over $630,000, and two of them stopped trading soon after, while the third became mostly dormant.
Although there is no evidence of wrongdoing, the incident underscores the potential for insider trades to aggressively move prices. The study's findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they are driven by the actions of a small group of informed traders.