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Insider Trading on Kalshi and Polymarket (Bloomberg, Matt Levine)www.bloomberg.com/opinion/newsletters/2025-12-15/the-video-of-dumb-investment
694 sats \ 14 comments \ @denlillaapan 13h econ
Yes, I mean it's unfathomable to me that not more people trade on betting sites on inside information
How this applies to prediction markets is a bit baffling, and some people do go around saying that insider trading in prediction markets is perfectly legal, though I certainly would not take that as legal advice
Apparently some shady bets on Google-related bets on Polymarket, and someone (insider?!) made $13,000. Have fun, stay poor with Predyx @mega_dreamer! (HOw on earth, are the regulators going to regulate who's got insider information from a Lightning address??)
If you have accurate inside information about Google search data, you could trade the stock, but that is obviously illegal and also messy: If the search news is good, you might buy the stock, but if there’s offsetting bad news that you didn’t know about, the stock might go down. Stock prices embed a lot of other stuff besides the single prediction you want to make. Just betting on the search data directly is a cleaner way to monetize your edge, and it is, you know, arguably more-ish legal-ish.
Agree with this: "while people instinctively think that insider trading in the stock market is bad, prediction-market intuitions are different."

"Prediction-market people do kind of philosophically love insider trading in prediction markets."

The point of a prediction market is to make prices correct, so insider trading seems helpful. (It is second-order unhelpful, because if prediction markets are full of insider traders then there’d be no one to trade against.)
one possible use case for prediction markets is “I have inside information, I want to insider trade, but the stock market is pretty regulated and frowns on insider trading. Is there a less-regulated market where I could accomplish the same thing?”
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102 sats \ 5 replies \ @SimpleStacker 13h
"Prediction-market people do kind of philosophically love insider trading in prediction markets."
I had as conversation about this on Stacker News. @steakneggs believes that more insider trading on prediction markets is better (#1327248) because they philosophically view prediction markets' purpose as an odds-revealing mechanism.
I can understand the argument but I'm not sure I agree with it. Even amongst insiders, there may be different levels of insider information. If the market unravels to only the agent with the most private information, there won't be anyone to take the opposite side of a trade, leading to no price. Even if a less extreme scenario of only partial unraveling, it's not clear to me that the volume in the market will be enough to accurately approximate the real odds of an event.
In any case, it also calls into question the business model and financial sustainability of these prediction markets, because they make money off volume, which is at odds with the prevalence of insider trading.
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0 sats \ 3 replies \ @denlillaapan OP 12h
If the market unravels to only the agent with the most private information, there won't be anyone to take the opposite side of a trade, leading to no price.
not sure I follow this. Explain? (having info is not the same as interpreting it, knowing therefore what it means... that's what Levine gets at in the piece. Obvs for binary bets, then sure, I see).
Isn't the point, then, that nobody knows that a particular trader knows...?
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69 sats \ 2 replies \ @SimpleStacker 12h
It's a traditional unraveling argument.
It's only profitable for me to trade in this market if I have more knowledge (including the interpretability of the knowledge), than the average market participant.
Knowing this, I drop out if I have zero private info. This elevates the average level of knowledge among the remaining participants, which elevates the knowledge requirement to be profitable. Thus, the traders who have more limited info drop out. The process continues until only the most knowledgeable trader stays in the market.
It's true that no one knows exactly what others know, and the quality of their own info. So that's my scenario of partial unraveling. The remaining participants are those with the highest confidence levels of their advantageous knowledge. The question is, will that volume be sufficient to generate an accurate price prediction? There's also the question of whether the confidence which engenders participation is correlated with real information.
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0 sats \ 1 reply \ @denlillaapan OP 12h
hm... I see.
But then... why does anybody trade anything? On stock markets, but even more so betting sites? Are we all just all in a perpetual Lake Wobegon?
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0 sats \ 0 replies \ @SimpleStacker 12h
Traditional answer is that the stock market is not zero sum. I think that's a satisfactory enough answer, but yeah the same information dynamics may be present in stock trading as well, which could explain the popularity of index funds
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0 sats \ 0 replies \ @Undisciplined 12h
It seems like you’d have to know how inside you are compared to the other participants, which I imagine most people wouldn’t know.
Also, lots of stuff just doesn’t have this issue at all.
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33 sats \ 2 replies \ @Undisciplined 12h
I can see why a company may want to prohibit insider trading but it’s clearly not a violation of property rights.
Making it illegal just seems like a wimpy commie instinct.
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69 sats \ 1 reply \ @denlillaapan OP 12h
lots of wimpy commies around, eh
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12 sats \ 0 replies \ @Undisciplined 11h
especially on your side of the pond
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12 sats \ 1 reply \ @Scoresby 10h
Yeah, I thought getting the insiders to trade was the whole point of prediction markets...
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0 sats \ 0 replies \ @denlillaapan OP 7h
Heeeeheeehe 👿
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0 sats \ 0 replies \ @mega_dreamer 6h
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0 sats \ 1 reply \ @OT 9h
There can still be situations where a whale makes an opposing bet to look like insider knowledge. It creates a buzz throughout social media, ultimately generating more liquidity for the whale to dump on.
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0 sats \ 0 replies \ @mega_dreamer 6h
It has been seen a lot on polymarket.
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