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 part of a small group of informed traders who are actually responsible for driving prices on Polymarket, while the majority of traders lose money around them.
The study, which analyzed over 1.72 million accounts and $13.76 billion in trading volume, found that just 3% of traders are responsible for most price discovery, consistently predicting outcomes and moving prices in the right direction. The remaining 97% of traders provide liquidity and generate volume, but ultimately end up 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, and found that only 12% of the biggest winners by raw profit were able to consistently beat the benchmark. The study's findings suggest that the activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and that they are the first to react to new information.
However, the same edge that makes skilled traders valuable to price discovery raises concerns about the potential for insider trading, particularly when information is not publicly available.