Buy Low

Prediction markets are a new twist on an old concept. Betting has been around since the beginning of time, and trading on derivatives (contracts to later buy or sell an asset) has been around for ages. Day traders do it all day long, trying to profit off what they think will happen to the price of commodities and companies. At its root, it’s all about the oldest rule in business: Buy low, sell high.

In 1988, the University of Iowa combined derivatives and gambling as a way of measuring public sentiment, launching the Iowa Electronic Markets (IEM), a forum in which people could assign a value to any future occurrence and trade those values. For decades, it remained a niche tool for political scientists. But with the recent rise of blockchain technology and platforms like Polymarket and Kalshi, it exploded into a multibillion-dollar industry where users trade on everything from the weather and sports to what Trump will say in his next interview.

Fans of prediction markets insist it’s no different than trading on the stock market. If wheat is selling at $5 per bushel and you think it will go up to $6, you buy it and cash out when it does. You can also sell earlier, at $5.30, or be forced to sell at a loss if it drops.

Predictions are the same concept, they argue. Every prediction share increases in value to exactly a dollar if it comes true, and drops to zero if it does not. The price of the share fluctuates as public sentiment drives demand.

When the IDF reservist made his buy, the market didn’t believe Israel would attack Iran in June and was willing to sell those dollar contracts for just 15 cents. Not many people wanted to buy them, and most people thought sellers would likely keep the 15-cent sale price when the month ended without an attack. But the attack did occur, and he made 85 cents on each share.

Now, though, he and his civilian friend are facing an indictment on charges of exploiting classified military information and risking operational security during wartime. This case, which was under gag order for months, has put a spotlight on the vulnerability of prediction markets to insider information, and to potential exploitation by hostile actors tracking patterns in real time.

On Monday, it was reported that an investigation has been opened into an anonymous Polymarket trader in Israel who made more than $637,000 in the last 30 days with bets on a series of loaded political topics, including the timing of the American attack on Iran. He previously raked in a fortune predicting the exact dates of one of Israel’s prior Iran operations and their invasion into Syria after the fall of the regime. Authorities are concerned that the individual is using sensitive intelligence information to place strategic bets.

On the House

If there is no “house,” then where do all the profits come from?

For each buy, someone must be buying the opposite prediction for the inverted price. The loser’s money is what’s paid to the winner. For each “yes” sold for 15 cents, someone bought a “no” for 85 cents.

But because there’s no “house,” winnings don’t come from a particular company; instead, they come from the “fade,” the person who bought the opposing position.

Polymarket and Kalshi employees create a specific market, or broad topic, and users can post shares to sell or buy within the market. Kalshi relies on massive Wall Street companies like hedge fund Susquehanna International, or big users, to fade against almost any bet someone wants to make, and gives benefits to these companies. And the trend is spreading: Robinhood, classically a futures trading forum, now offers prediction trading as well.

From Your Couch

Chaim is a typical day trader. He reviews stock and futures trends in the morning, identifies short-term opportunities for quick price increases, and makes some buys. He then learns with his chavrusa for a few hours, and returns to sell his holdings for a decent profit.

It’s a clean, straightforward parnassah, he says; and it gives him time to learn.

Then there are young fellows like Logan Sudeith, a 25-year-old from Atlanta, who’s been making over $100,000 a month from his laptop lounging on his couch. He quit his job with a finance firm, where he was making 75K a year, and sits on Kalshi and Polymarket all day.

Some of his biggest hauls in recent months include $40,236 on betting on Time magazine’s person of the year, $11,083 on the most searched person on Google last year, and $7,448 on the New York City mayoral race.

There are many ways to make money on prediction markets. Players don’t actually have to wait and see if they got the prediction right — they just need to know what people are likely to start thinking will happen and how the prices will slide as a result, and can then resell or trade their shares even before the final outcome.

For example, if after the IDF reservist bought his shares, public rhetoric on an attack between Israel and Iran would have spiked dramatically and the value of his shares would have risen to 30, 50, or 90 cents, he could have sold his shares at that price, making a hefty profit even before the attack actually happened.

Hedge Your Losses

Many other unforeseen uses have developed from prediction markets. One such use is a way to protect against expected losses.

In the traditional commodities-trading world, a wheat farmer concerned that a bad harvest might drive down the price of his crop can sell futures contracts to hedge, or limit, his risk. By selling a contract to deliver wheat at a price fixed months in advance, he protects his livelihood against major losses, although he also gives up on extra profit he may make if the actual prices rise above the contract he sold. This is like a “bet” that stabilizes his income. (Bava Metzia learners will recognize this case from “Eizehu Neshech” — consult your LOR for ribbis sh’eilos.)

Prediction markets offer the same “hedging” capability for the complexities of modern life. For example, a business owner worried about a potential tax hike could buy “yes” shares on a specific piece of legislation; if the tax passes, winnings in the prediction market help offset his increased tax bill.

Another way of using the markets is leveraging a system that mathematically guarantees a win. If a trader can find different prices on the same prediction on Polymarket and Kalshi, he can make guaranteed money by buying “yes” on one and “no” on the other — both at the lower price. So if he buys “yes” at 49 cents on one, and the other is selling it for 51 cents, he can buy “no” at 49 cents on it. One of the two must win, giving him a 51-cent win and a 49-cent loss, earning two cents per share, no matter the actual outcome.

On the Inside

At a recent White House press conference, Press Secretary Karoline Leavitt abruptly left the room seconds before the meeting hit the 65-minute mark. To most observers, the timing was insignificant. But prediction market bettors watching the meeting carefully couldn’t believe their eyes.

Tens of thousands of shares had been bought and sold on the question: Will Leavitt be in the room more than 65 minutes? Prediction forums and chat groups lit up, complaining that the bet was “insidered.”

Was Leavitt aware of — or did she have a stake in — the bets? It’s impossible to prove either way. Kalshi requires users to provide government ID, so the makers of unusual or suspicious bets can be traced, but Polymarket does not.

In contrast to the stock market, insider buying and trading (investing in a prediction you have unique access to knowledge about) is not illegal or even against forum rules. Many bets hinge on things easily controllable by a single person, such as “Will Mamdani say ‘subway’ in his next speech?”

Professional athletes are banned by league rules from betting on sports altogether, including proposition bets — wagers placed on a specific event or statistic within a game — to avoid the appearance of fixing the result of a game. In October, authorities arrested NBA player and coach Terry Rozier and Chauncy Billups in connection with an investigation into fixing games. When Mikie Sherrill ran for governor of New Jersey, her opponent invested heavily in ads accusing her of making $7 million off suspicious trades about which she may have had inside information about as a member of Congress. Nancy Pelosi has faced similar scrutiny, and a bill banning members of Congress from buying stocks at all is named after her.

Lawmakers have proposed a bill banning federal officials from trading on prediction markets using nonpublic information. But for now, all of that is fair game in prediction markets. Experienced bettors have learned to spot potential insider trades and have figured out how to avoid losing, or even gaining, from them.

Evan Semet, a serial entrepreneur, quit his job and now makes six figures a month on Kalshi. Some bettors always seem to nail specific predictions, he told NPR in a recent interview, like when the next version of ChatGPT will be released. “Just don’t fade these people,” he said, because they obviously have inside knowledge and you can’t win.

Others spot insider bets and profit off it using a tactic called “tailing,” or tracking suspiciously large bets that indicate insider information, and buying it, too.

Wild West

Insider trading isn’t the only problematic aspect in the world of prediction markets. The entire industry is so new that it is largely unregulated. Polymarket never bothered to apply for approval from the US Commodity Futures Trading Commission (CFTC), operating freely for several years, while sister market Kalshi, founded by Wall Street traders and MIT grads Tarek Mansour and Luana Lopes Lara, fought for a trading license.

Kalshi finally got one on Election Day in 2020, and the Biden administration CFTC eventually shut down Polymarket in the US in 2022. The administration sued Kalshi, claiming betting on elections would influence people to vote for a candidate they didn’t really want to win.

Trump’s second White House dropped the lawsuit against Kalshi and has allowed Polymarket to resume operations in the country. But the markets operate outside state and federal rules on sports wagering and similar types of online gambling, and still remain very much the lawless frontier of financial speculation. Eight states have ordered Kalshi to shut down in their state.

Perhaps one reason is that New York, one of the states fighting Kalshi, made $2.71 billion in taxes on sports betting from January through September of 2025. Prediction markets, in contrast, aren’t taxable.

Dead Right

In late 2024, while official diplomatic channels were silent, a strange surge occurred on prediction platforms. A lone trader, operating under an anonymous digital handle, began aggressively buying “yes” shares on the question of whether Venezuelan president Nicolás Maduro would be ousted or captured by a specific date. When a secret mission led to the Venezuelan leader’s apprehension, that trader didn’t just win a bet; he realized a $400,000 windfall.

The market hadn’t just predicted the news; it had apparently known one of the US government’s most carefully guarded secrets before it happened. If a Venezuelan intelligence officer had been watching closely, he could have been tipped off that something was up.

Reports have circled of Iranian IRGC staff tracking Polymarket bets in Israel closely for clues as to its plans. News organizations are now watching carefully as well; CNN and CNBC have signed an agreement with Kalshi to share its data, while the Wall Street Journal negotiated one with Polymarket.

Intelligence services are taking the threat seriously. The IDF reservist and his partner who made $150,000 by accurately predicting the 12-day war got a knock on their doors in February by the Shin Bet. While it’s still unclear what specific crime they can be charged with other than a loose “misuse of classified information,” it does show that more specific legislation is sure to follow quickly.

Close Calls

On the night of November 5, 2024, election results rolled in to newsrooms across the world. They leaned heavily toward Donald Trump, but pundits hesitated to call the race.

Polymarket didn’t.

Long before the press went on record with the results, shares for Trump to win shot up to 90 cents on the market, meaning he had a 90% chance of winning.

The markets also served as a tool to accurately predict the outcome of the election in advance. During all three of his presidential election campaigns, Trump complained about pollsters skewing the numbers in favor of his opponent, accusing them of attempting to influence the outcome by creating false impression of general public sentiment. However, in all three elections, the vote was indeed significantly more in his favor than polls indicated.

But prediction markets were more accurate.

While traditional pollsters insisted the 2024 race was a dead heat right down to the wire, prediction markets like Polymarket showed a consistent, widening lead for Trump. Indeed, he won by an arguable landslide, sweeping all swing states.

Why do the markets do better than polls?

Money spent in prediction markets is “skin in the game.” A poll respondent can say anything to a stranger on the phone to virtue signal or express a whim. A market trader, however, backs opinions with cold, hard cash. As former US Treasury Secretary Larry Summers noted, these markets reveal consensus beliefs because they don’t just measure which candidate people want to win; they measure who they expect to win.

But there’s a risk of manipulation in this as well.

In the months leading up to the election, four separate accounts on Polymarket in France began putting millions on a Trump victory. This pushed the market prices higher, and led others to buy it, pushing it higher still. Eventually, what came to light was that all four accounts were owned by the same individual. Dubbed the “French whale,” he turned out to be a trader known as Théo, who finally totaled over $45 million on the bet. Critics quickly screamed “manipulation,” accusing Théo of supporting Trump and trying to skew sentiment, manufacturing a sense of inevitability.

Theo, however, had commissioned his own “neighbor polls” — asking people not who they would vote for, but who they thought their neighbors were voting for. This way, he was able to capture the shy-voter effect that traditional polls missed. He backed his theory with his money — and walked off with $83 million in winnings.

This risk is compounded by “wash trading,” where a single person operates multiple accounts — buying and selling to themselves to create buzz around a prediction. While platforms like Kalshi claim to monitor for such risks, the decentralized and often offshore location of these markets allows for unpredictable influence.

DICE AND PIGEONS

On the surface, day-trader Chaim and predictions trader Logan Sudeith are doing similar things: identifying likely valuable future assets and making limited, safe buys. Should Chaim get into predictions trading, where he can make at least ten times the amount he’s earning today? Or is it a slippery slope into gambling, addiction, and loss? Or to take a step back, is his choice of industry already an unwise one?

Today, Polymarket sees over $2 billion a month spent on its platform. Even “professional” predictions trading has cropped up as a cottage industry, and although some users making six figures a month in profits, many people are still losing, sucked in by the gambling bug.

“This is classic gambling, just like betting on a horse,” says Rav Chaim Meir Roth, av beis din at Beis Din Maysharim in Lakewood, who says that a G-d-fearing person should steer clear of any involvement with prediction markets.

Regarding trading shares before the actual outcome, something many predictions traders do regularly, is this a more acceptable way of playing these markets?

Rav Roth dismisses the distinction. “So you’re betting on a horse and selling the ticket,” he says. “I would say that’s not much better.”

Rav Avrohom Gutman, also a dayan in Lakewood, adds a sharp warning. “If you are putting money on predictions that you don’t know will occur, it’s a genuine bet,” he says. (And he offers another suggestion: “If you have an addiction, call 1-800-GAMBLER.”)

How is prediction trading different than trading on the stock market? Rav Gutman points out that when you buy a share or commodity, you actually own something. Its value might fluctuate, but it is a real purchase and investment. Predictions are nothing.

What about buying derivatives, whose prices derive from fluctuations in the prices of underlying assets? Prediction markets are similar, but that only makes them both unwise. Investing in speculative futures may very well be gambling as well, but it’s too widespread a phenomenon to decry at this point.

There are two primary halachic issues with gambling: a rabbinical decree considering it theft (gezel d’rabbanan), and failing to be a contributing member of society (eino osek b’yishuvo shel olam).

Chazal forbade playing dice and racing pigeons out of concern that the other bettor never really thought he would lose, and taking his money is somewhat against his will — considered theft by rabbinical decree.

Rav Yitzchok Berkovits, a posek, rosh kollel, and rosh yeshivah in Jerusalem, cites the opinion of the Rema that this is not a concern when the bettors “put their money on the table” before running the bet. As purchases of prediction shares have to be made and paid for in advance, they would fall into the same category.

However, Rav Gutman rules that it is proper to consider the opinion of the Rambam and many Acharonim who do not consider this heter sufficient.

Secondly, all yerei Shamayim are instructed to be contributing members of society. One who derives his livelihood from frivolous, meaningless pursuits, such as empty betting, violates this rule and is even disqualified from being a witness. For Sephardim, this is a forbidden activity; for Ashkenazim, while recreational gambling is not forbidden, professional gambling is.

Rav Berkovits considers an interesting possibility: Since derivatives trading on stocks and commodities is widespread and not really any different than prediction trading, could that become “yishuvo shel olam?” He does not go as far as to allow it based on that reasoning, and cautions against the “psychological games” and the addictive nature of speculating in both stocks and predictions.

DOES HALACHAH PERMIT Jews to bet on positions based on insider knowledge?

“If you really know for a fact,” Rav Gutman says, “then it’s not gambling… it’s stealing. The person you are betting against assumes it’s a fair gamble.” He does not conscience a heter based on ta’us akum (a mistake made by a non-Jew).

What about bets about which you don’t have an unfair advantage, but have done significant research and analysis and can predict the outcome with reasonable probability? Is that still the halachic equivalent of playing dice?

“It’s not like playing dice,” Rav Gutman explains. “But it is like racing pigeons. The Gemara explicitly defines racing as a gamble in which one party has good reason to assume he will win, because he has a better pigeon, better training, or better strategy.”

He’s a more sophisticated bettor, but still just a bettor. And if there’s anything we can learn from the Purim story, it’s that sure bets don’t always pan out quite as planned.

On the surface, day-trader Chaim and predictions trader Logan Sudeith are doing similar things: identifying likely valuable future assets and making limited, safe buys. Should Chaim get into predictions trading, where he can make at least ten times the amount he’s earning today? Or is it a slippery slope into gambling, addiction, and loss? Or to take a step back, is his choice of industry already an unwise one?

Today, Polymarket sees over $2 billion a month spent on its platform. Even “professional” predictions trading has cropped up as a cottage industry, and although some users making six figures a month in profits, many people are still losing, sucked in by the gambling bug.

“This is classic gambling, just like betting on a horse,” says Rav Chaim Meir Roth, av beis din at Beis Din Maysharim in Lakewood, who says that a G-d-fearing person should steer clear of any involvement with prediction markets.

Regarding trading shares before the actual outcome, something many predictions traders do regularly, is this a more acceptable way of playing these markets?

Rav Roth dismisses the distinction. “So you’re betting on a horse and selling the ticket,” he says. “I would say that’s not much better.”

Rav Avrohom Gutman, also a dayan in Lakewood, adds a sharp warning. “If you are putting money on predictions that you don’t know will occur, it’s a genuine bet,” he says. (And he offers another suggestion: “If you have an addiction, call 1-800-GAMBLER.”)

How is prediction trading different than trading on the stock market? Rav Gutman points out that when you buy a share or commodity, you actually own something. Its value might fluctuate, but it is a real purchase and investment. Predictions are nothing.

What about buying derivatives, whose prices derive from fluctuations in the prices of underlying assets? Prediction markets are similar, but that only makes them both unwise. Investing in speculative futures may very well be gambling as well, but it’s too widespread a phenomenon to decry at this point.

There are two primary halachic issues with gambling: a rabbinical decree considering it theft (gezel d’rabbanan), and failing to be a contributing member of society (eino osek b’yishuvo shel olam).

Chazal forbade playing dice and racing pigeons out of concern that the other bettor never really thought he would lose, and taking his money is somewhat against his will — considered theft by rabbinical decree.

Rav Yitzchok Berkovits, a posek, rosh kollel, and rosh yeshivah in Jerusalem, cites the opinion of the Rema that this is not a concern when the bettors “put their money on the table” before running the bet. As purchases of prediction shares have to be made and paid for in advance, they would fall into the same category.

However, Rav Gutman rules that it is proper to consider the opinion of the Rambam and many Acharonim who do not consider this heter sufficient.

Secondly, all yerei Shamayim are instructed to be contributing members of society. One who derives his livelihood from frivolous, meaningless pursuits, such as empty betting, violates this rule and is even disqualified from being a witness. For Sephardim, this is a forbidden activity; for Ashkenazim, while recreational gambling is not forbidden, professional gambling is.

Rav Berkovits considers an interesting possibility: Since derivatives trading on stocks and commodities is widespread and not really any different than prediction trading, could that become “yishuvo shel olam?” He does not go as far as to allow it based on that reasoning, and cautions against the “psychological games” and the addictive nature of speculating in both stocks and predictions.

DECODED LINGO

Prediction Markets have their own encrypted language. Here are some definitions to help decipher the mystery.

Strike: a specific term of the bet

Fade: to trade on the opposite side of someone because you think they are wrong

Bondsharp: someone willing to fade against almost anyone

Insidered: when a trader appears to have insider information

Alpha: insider information

Tailing: betting along with a suspected insider bet

Fudding: panic selling (from fear, uncertainty and doubt) because of a bad news report

Nuke: a sudden, large price crash

Printed: made a lot of money

Rinsed: lost a lot of money

Head: a major event, like “Who will win the 2024 election?”

Mogged: strategically outmaneuvered by another trader

Noob: newbie, inexperienced trader

(Originally featured in Mishpacha, Issue 1102)