A recent scandal involving a Green Beret arrested for betting on a classified U.S. raid may be more than an isolated incident, as a new study suggests that a small group of informed traders, like the accused soldier, significantly influence prices on platforms such as 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 just 3% of traders are responsible for the majority of price discovery, consistently predicting outcomes and moving prices in the correct direction.
In contrast, the remaining 97% of traders primarily 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, using the same markets, moments, and dollar amounts, but with the direction of the bet determined by a coin flip. The results showed that only 12% of the biggest winners by raw profit consistently outperformed the benchmark, and many apparent winners did not sustain their performance over time. The activity of skilled traders improves market accuracy, particularly in the final stages before resolution, and they are also the first to react to new information, such as Federal Reserve announcements or corporate earnings.
However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not public or is not supposed to be. The study 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 accounts placed unusually large bets on a contract related to the event, collectively making over $630,000. While insider trades are rare and concentrated in a handful of events, the findings challenge the idea that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the presence of informed traders.