What Is Prediction Market Arbitrage?
Arbitrage in prediction markets occurs when the same event is priced differently across two or more platforms. By buying on the cheaper platform and selling on the more expensive one, traders can lock in a risk-free profit regardless of the outcome.
For example, if "Will Bitcoin hit $100K?" is priced at 60¢ on Polymarket and 65¢ on Kalshi, you could buy Yes on Polymarket (60¢) and sell Yes on Kalshi (65¢), capturing a 5¢ spread per contract.
How to Calculate Arbitrage Spreads
The basic formula compares the bid and ask prices across platforms:
Spread = Platform A Bid - Platform B Ask
When this spread is positive after accounting for fees, there's an arbitrage opportunity. PredRadar displays this as "basis points" (bps), where 100 bps = 1¢ per contract.
Accounting for Fees
Both Polymarket and Kalshi charge trading fees. A 2% fee on each side reduces your effective spread. Always factor in fees before executing: Net Spread = Spread - (Platform A Fee + Platform B Fee).
Types of Cross-Platform Arbitrage
Direct Arbitrage
The same binary event exists on both platforms with identical resolution criteria. This is the cleanest form — you're trading the exact same contract.
Synthetic Arbitrage
Sometimes identical events are structured differently. For example, Polymarket might have "BTC above $100K by Friday" while Kalshi has "BTC at or above $100,000 by end of week." Careful analysis of resolution criteria is essential.
Risks and Considerations
Settlement risk: Platforms may interpret ambiguous outcomes differently. Always read the resolution criteria carefully.
Execution risk: Prices move fast. By the time you execute on both platforms, the spread may have closed.
Capital lockup: Your funds are locked until the event resolves, which could be days, weeks, or months.
Platform risk: Counterparty risk differs between regulated (Kalshi) and unregulated (Polymarket) platforms.