How to Trade Prediction Markets for Profit

Trading With Larry Benedict
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How to Trade Prediction Markets for Profit

By Larry Benedict, editor, Trading With Larry Benedict

The SpaceX blockbuster IPO, NBA playoffs, World Cup drama, the high-stakes Fed meeting… These massive events all have one thing in common.

They’re supercharging growth across prediction market platforms.

Since May 15, Kalshi has seen a 135% increase in daily active users. Polymarket’s user growth has spiked 191%.

That’s incredible growth. And it shows how many people are eager to get their hands on the profits this space offers. That said, to make those profits, you need a strategy.

So today, let’s look at the elements for building a successful approach to prediction markets and jump-starting your way to profits…

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How to Build a Prediction Market Trading Plan

Prediction market “event contracts” – covering sports, financial markets, geopolitical developments, and more – are handing users multiple new ways to trade. You can now profit from the outcome of a game, a mention of a word, or the closing price of a financial asset.

As you can see, prediction markets offer unique opportunities that you can’t find in stocks. Yet there are similarities in how you should approach each. You wouldn’t jump into a stock without checking on some basic facts, and prediction markets work the same way.

First, when it comes to finding an event to trade, one place to start is liquidity.

Trading illiquid stocks can hit you with higher transaction costs from bid/ask spreads. Meanwhile, prices are subject to wild volatility. Prediction markets work similarly. You want to target events with a reasonable level of liquidity and activity to ensure you’re able to get in and out at reasonable levels.

Second, you want to make sure you understand the details around an event.

When you buy a stock, you’re hoping for one outcome – a rising share price. In contrast, prediction market events can have nuances for what’s considered a successful event outcome.

Take an event tied to the price of oil, for instance. What oil benchmark is being used to measure the price (such as WTI or Brent)? Or if the price is tied to a futures contract, what specific monthly expiration?

You should also have an understanding of the event contract’s settlement date and rules for settling disputes. Those are important details to grasp before putting your money into a trade.

Finally, and perhaps most important of all, you need to have a sound risk management strategy.

The price you pay to enter a contract is what you stand to lose – whether that’s $50, $5,000, or more. Proper position sizing is critical to staying in the game over the long term.

So what’s the next step?

Tune in to Trading With Larry Live

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Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch.

Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest.

Prediction Markets: Where to Start?

Prediction markets are an exciting frontier experiencing exponential user growth. They remind me of the growing potential of options when I started trading over 40 years ago.

But just like options trading, you need a sound approach for selecting the best opportunities and managing risk at the same time.

That’s why I just launched Prediction Profits… to take my trading expertise and apply it to selecting the best opportunities that prediction markets have to offer.

If you're ready to put a real strategy behind your prediction market trades, Prediction Profits is where to start. For a brief time, you can still catch the replay of my prediction market briefing from last week.

I’m excited to start recommending these types of opportunities to my readers. And I hope you’ll come along for the ride.

Happy Trading,

Larry Benedict
Editor, Trading With Larry Benedict

Free Trading Resources

Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out.

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