Arbitrage

Arbitrage in prediction markets typically takes two forms. The first is cross-market arbitrage: if the same event is priced differently on two platforms (e.g., a contract is at 60¢ on Polymarket and 65¢ on Kalshi), a trader can buy on the cheaper platform and sell on the more expensive one, locking in a risk-free profit if both positions resolve identically.

The second is combinatorial arbitrage: since the probabilities of all mutually exclusive outcomes in a market must sum to 100%, if YES + NO shares are trading below $1.00 total, you can buy both sides and guarantee a profit at resolution. This is called a "sure thing" or "Dutch book" situation. In efficient markets, such mispricings are quickly corrected by arbitrageurs, which is part of why prediction market prices tend to sum to approximately $1.00.

In practice, true risk-free arbitrage in prediction markets is rare and short-lived. Execution risk (prices moving before both legs are filled), platform withdrawal restrictions, gas fees on crypto-based markets, and differences in resolution criteria between platforms can all eliminate apparent arbitrage opportunities. What appears to be arbitrage is often actually a bet on resolution criteria differences or counterparty risk.