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 represent an extreme example of a small group of informed traders who drive price movements on platforms like Polymarket, while the majority of participants incur losses. 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, meaning they consistently predict outcomes and move prices in the correct direction. In contrast, the remaining 97% of traders provide liquidity and generate volume but tend to lose money in aggregate. To distinguish between skill and luck, the researchers simulated each trader's bets 10,000 times, keeping all variables constant except the direction of the trade. The results showed that among the top winners by raw profit, only 12% outperformed the simulated benchmark, and many apparent winners did not sustain their performance over time.
The study also found that when skilled traders account for a larger share of trading activity, market 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, 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 may be acting on non-public information. The researchers highlight the risk of insider trading, citing a concrete example involving 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 a contract asking whether Maduro would be removed, collectively making over $630,000 when the event occurred. While there is no evidence of wrongdoing in this specific case, the study suggests that insider trades can have a significant impact on price movements, albeit rarely. Overall, the findings challenge the notion that prediction markets work due to the collective knowledge of the crowd, instead suggesting that they rely on the expertise of a small group of informed traders.