The Biggest Risk in Prediction-Market Arbitrage

In textbook arbitrage, one of your two positions always pays. That guarantee only holds if the two contracts resolve the same event the same way. When they don't, a single real-world outcome can make both legs lose — the classic failure mode of cross-platform arbitrage.

Where mismatch hides

• Different resolution sources. One platform resolves on a Congressional certification; another on an Associated Press race call. In a contested election these can diverge for days or weeks.
• Different thresholds. "Bitcoin above $150,000" — on which feed? At which close? A spike on one data source but not the other resolves one leg YES and the other NO.
• Timing windows. "Before year-end" on one platform, "during 2026" on another.
• Reclassification. Hurricane categories are sometimes revised after landfall.

How GapWatch handles it

Every matched pair carries a Contract Match %, a comparison of wording, resolution criteria and sources, and a settlement-risk rating with an explicit warning when the two rulebooks disagree. Opportunities with a mismatch warning are flagged before you ever see a headline spread.

The rule

Read both rulebooks before you size a position. A 5% gap on a mismatched pair is not arbitrage — it's two correlated bets.