What Creates Arbitrage?
Cross-platform arbitrage in prediction markets arises from structural differences between platforms. Polymarket and Kalshi serve different user bases, have different liquidity profiles, and process information at different speeds. These differences create persistent price gaps that traders can exploit.
A Real Example
Consider a market on whether the Federal Reserve will cut rates at its next meeting. On Polymarket, the "Yes" contract trades at 62¢ (62% implied probability). On Kalshi, the equivalent contract trades at 57¢. That's a 5-cent spread — or 500 basis points.
Step 1: Verify the Markets Match
The most critical step is ensuring both contracts resolve on the same terms. Check resolution criteria, source of truth (e.g., FOMC statement), and timing. A 1-day difference in expiration can explain a price gap that isn't really arbitrage.
Step 2: Calculate the True Spread
Account for fees on both sides. Polymarket charges ~2% per trade; Kalshi charges ~7¢ on winning trades only. After fees, a 500bps gross spread might net 300bps.
Step 3: Execute Both Legs
Buy the cheap side (Kalshi at 57¢) and sell the expensive side (Polymarket at 62¢) simultaneously. Speed matters — the spread can close in minutes during active trading hours.
Step 4: Wait for Resolution
Regardless of the outcome, your combined position profits from the spread. If the event happens, you collect $1 from Kalshi and pay $1 from Polymarket — but you paid 57¢ and received 62¢. If it doesn't happen, both expire worthless but you're still net positive from the spread.
Why Spreads Persist
Capital requirements (money locked on two platforms), regulatory barriers (Kalshi requires US residency), and platform friction all prevent arbitrage from being instantly eliminated. This is what makes it profitable for those willing to navigate the complexity.