Prediction Market Trading Strategies 101

What if I told you making money on prediction markets is less about being right, and more about trading smart? It’s true — and you don’t necessarily need to be a sophisticated trader with complex models and statistical projections to do so. People are winning money every day on top prediction market sites like Polymarket and Kalshi by deploying proven prediction market trading strategies.

But if it’s your first time on a prediction market, you might not even know where to start. The platforms are much different than traditional sportsbooks. Learning the tricks of the trade (pun intended) can be frustrating as you navigate order books, contract prices, and resolution criteria across markets.

The good news is that prediction markets aren’t as complicated as they look. By the end of this article, you will have a foundation of prediction market strategies that you can add to your trading playbook — but before we get to those, let’s start with some basic tips for anyone brand new to prediction markets. (If it’s not your first rodeo, feel free to skip to the next section.)

Beginner prediction market trading tips

Start small or with play money: Start with small trades to get a feel for market mechanics. Most platforms have low minimum deposits—usually around $10. You’re going to make mistakes, so plan accordingly. You can also try play-money platforms like Manifold Markets before moving into real-money markets.
Tackle one market at a time: Diversifying will be important eventually, but when starting out, it’s easier to “solve” one or two markets and build confidence from there.
Leverage your expertise(s): Stick to topics you already know. If you follow politics, trade political markets. Movie buff? Try trading the Oscars or betting on Rotten Tomatoes scores. Familiarity can be your edge.
Read the fine print: Beyond every market headline, there’s detailed descriptions with market rules that includes how an outcome is determined, including key source agencies, dates, and a timeline for payout. It’s crucial to read the rules to properly understand the market, otherwise you might find yourself trading based on false assumptions. Let other traders make that mistake.
Use limit orders: Don’t be too eager to instantly buy contracts — asks and bids won’t necessarily be a fair market price, and you can avoid fees on exchanges like Kalshi by placing limit orders yourself.
Set expiration date on orders: Especially for newer traders, expirations on limit orders prevent your order from sitting unguarded if market-moving news breaks.
Manage your bankroll: Don’t dump your whole account into one trade. A smart rule of thumb is to risk only 1–5% of your bankroll per position. Even if you’re confident you have an edge in a market, it’s important to plan for variance.
Watch the news cycle: Prediction markets are sensitive to breaking events. Use Google Alerts or X Pro dashboards and other tools to stay on top of it all. And always confirm: will the news actually resolve the market?
Look for exit liquidity: If you’re trying to buy low and sell high, then you want to look for markets with sufficient liquidity. Don’t assume you can always get out. A great trade on paper means nothing if there’s no one to later buy your position. Before entering a market, look at the bid-ask spread and trading volume.
Get creative with your research: Don’t just rely on headlines or major media outlets. Other traders see those too, and markets—especially popular, liquid ones—quickly price in relevant news. Explore niche corners of the internet to help inform your trading. Lesser-known sources can surface unique insights and give you an edge before mainstream attention drives prices.

Core prediction market trading strategies

Now that you know the basics, let’s dive into a few strategies you can use in prediction markets.

Swing Trading (Buy Low, Sell High)

Just like stocks, you can buy a contract at one price and sell it later at a higher price. This is especially effective in more volatile markets, but like all things, doing so successfully is easier said than done. The good thing is this strategy doesn’t require you holding positions long term, and you don’t necessarily need to be right to make money — you just need to spot when things are undervalued and overvalued.

Best for: Short-term traders watching market sentiment.
Watch for: News cycles, sudden price swings, exit liquidity.

Predictive Trading

Predictive trading involves building a position based on your independent forecast, relying on long-term conviction. This might mean analyzing electoral dynamics and political markets, interpreting economic indicators in inflation markets, or using your intuition to predict winners of an award show, like the Grammys or Oscars. The goal is to enter positions early and let the price move toward your assessed probability over time, usually holding the positions all the way to settlement.

Best for: Traders with domain expertise or deep research and analytical skills
Watch for: Confirmation bias, overconfidence in your assumptions, and slow-moving markets; avoid long-term markets if you don’t want to lock up a portion of your bankroll.

Bonding

Bonding is a conservative prediction market strategy where traders purchase shares of high-probability outcomes—typically priced at 95¢ or higher—with the intention of holding them until resolution to earn a small, relatively safe return. In many cases, outcomes have already been determined, but the exchange has not yet settled the market. As a result, some traders sell their shares at a small discount in order to liquidate their position. This approach treats these shares similarly to short-term bonds that mature at full value upon market resolution. Here’s more information about bonds in prediction markets.

Best for: Traders with larger bankrolls or those aiming for consistent, low-risk returns; trading on platforms with one-cent pricing tickers (e.g., Kalshi).
Watch for: Events that have been determined or are almost certain to happen, market resolution delays, recurring, and short-term markets.

Arbitrage

Sometimes similar contracts trade at different prices across platforms or even within the same platform. Traders can lock in risk-free (or near risk-free) profits by exploiting these mispricings.

Best for: Math-savvy, detail-oriented traders who are using multiple platforms.
Watch for: Correlated markets, drastic price changes within the same market, fees, resolution criteria, and timelines.

Event Hedging

Some people use prediction markets as a personal hedge or a form of insurance. For example, are you worried about gas prices rising? Do you own a restaurant and want to hedge against soaring egg prices? You can actually purchase contracts on these events happening, that way your market gains can offset your real-world losses.

Best for: Individuals or businesses exposed to real-world risks.
Watch for: Market liquidity, expiration dates.

Market Making/Liquidity and Reward Farming

On certain platforms, providing liquidity can earn rewards. These traders profit by market making (i.e, setting limit orders within the spread) and letting other users fill them, often earning yield, points, or fee rebates in return.

Best for: Experienced traders with capital and patience, access to Polymarket.
Watch for: Thin markets, impermanent loss, and platform-specific rules around reward eligibility and payouts.

Strategy vs. prediction market platform

Strategy	Kalshi	Polymarket	Manifold	Metaculus	Robinhood
Swing Trading	✅	✅	✅	❌	✅
Predictive Trading	✅	✅	✅	✅	✅
Bonding	✅	✅	❌	❌	Use Kalshi
Arbitrage	✅	✅	✅	❌	Use Kalshi
Event Hedging	✅	✅	❌	❌	✅
Market Making / Reward Farming	❌	✅	✅	❌	❌

Final thoughts

While intuition helps, consistent profitability in prediction markets requires discipline and strategy. These aren’t casinos—they’re marketplaces, and there are plenty of opportunities to profit if you’re willing to put in the time. Understanding how to read price signals, manage risk, and trade around news events can give you a real edge, especially in less efficient or lower-volume markets.

Remember to start small, learn from every trade (win or lose), and stay focused on the fundamentals. A strong strategy can help you separate from other traders, while building your bankroll in the process.

Glossary of key trading strategy terms

Prediction market: A platform where users trade contracts based on the outcomes of future events.
Contract: A yes-or-no market question that pays out $1 if the event happens.
Limit order: An order to buy or sell at a specific price rather than the current market price.
Liquidity: How easily you can buy or sell a contract without impacting the price.
Bid-Ask spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask).
Resolution criteria: The rules and sources used to determine a market’s outcome.
Bonding: Buying high-confidence shares (e.g., 95¢ or above) for a small but likely profit when they settle.
Arbitrage: Profiting from price discrepancies across different markets or platforms.
Hedging: Using prediction markets to offset real-world financial risk.
Impermanent loss: Loss incurred when providing liquidity alongside automated market makers, due to price changes in the underlying asset.