What Is Prediction Market Arbitrage?

Prediction markets let people trade contracts that pay $1 if an event happens and $0 if it does not. A contract priced at $0.52 means the market assigns roughly a 52% probability to that outcome.

Because prediction markets are separate platforms with separate traders, the same real-world event can be priced differently on each one. Arbitrage is the practice of buying YES on one platform and NO on the other when their combined cost is below $1.00.

A worked example

Suppose:

• Platform A: "Candidate X wins" YES = $0.52
• Platform B: "Candidate X does not win" NO = $0.43

Combined cost: $0.95. Exactly one of these two positions will pay $1 at settlement. If you hold both, you have locked in $1.00 of payout for $0.95 of cost — a gross spread of 5% before fees.

Gross is not net

The gross spread ignores the three things that eat into every real trade: fees, liquidity (can you actually get filled at those prices?), and settlement risk (do the two contracts resolve the same way?). GapWatch exists to show you the realistic net number, not just the headline.

What arbitrage is not

It is not a prediction. You are not betting on the outcome — you are priced to win (or roughly break even) under either outcome. The edge comes from the price gap itself, which is why execution speed, costs, and contract-matching quality matter more than opinions.