A recent scandal involving a Green Beret arrested for wagering on a classified US raid may be more than an isolated incident, as a new study suggests it could 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 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 largely fail to do so, instead providing liquidity and generating volume, but ultimately ending 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, reversing the direction of the trades to establish a benchmark for what their 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 study also found that the activity of skilled traders improves market accuracy, with prices moving closer to the correct outcome, especially in the final stages before resolution.
Moreover, these traders are the first to react to new information, such as Federal Reserve announcements or corporate earnings, whereas other traders exhibit little consistent reaction. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not publicly available or is not supposed to be.
The paper highlights the risk of insider trading, citing the example of the US removal of Nicolás Maduro from power in Venezuela, where three newly created Polymarket accounts placed unusually large bets on the contract before the event, collectively making over $630,000. While insider trades are rare and concentrated in a handful of events, the study's findings challenge the notion that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the informed traders who drive market accuracy.