A recent scandal involving a Green Beret who was arrested for betting on a classified US raid may be more than just an isolated incident. According to a new study, 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 incur losses.
The study, conducted by researchers from the London Business School and Yale, analyzed over 1.72 million accounts and $13.76 billion in trading volume on Polymarket from 2023 to 2025. The findings indicate that just 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, while the remaining 97% of traders largely do not.
Instead, they provide liquidity and generate volume, but ultimately end up on the losing side of trades against the informed minority. Distinguishing between skill and luck is a challenge, as many traders may accumulate significant winnings by chance alone. To address this issue, 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, as prices move closer to the correct outcome when they account for a larger share of trading. 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 they are trading on non-public information. Both Polymarket and Kalshi have stated that trading on non-public information is strictly prohibited.
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 asking whether Maduro would be removed, despite the market pricing the odds at around 10% at the time.
When the raid occurred, these accounts collectively made over $630,000, and two of the accounts stopped trading entirely soon after. While there is no evidence of wrongdoing, the incident raises questions about the potential for insider trading on prediction markets. The study's findings challenge the notion that prediction markets work due to the collective knowledge of the crowd. Instead, they suggest that the accuracy of these markets depends on the presence of informed traders who consistently outperform the rest.