[DigitalToday reporter Chi-gyu Hwang] Prediction markets, where people can bet on what will happen in the future, are growing rapidly.

According to The Block Data, combined trading on the prediction markets Polymarket and Kalshi totaled $24.2 billion as of April, jumping from $1.8 billion a year earlier. Polymarket and Kalshi have grown rapidly on the back of a campaign saying users can easily make money by using knowledge they already have, pushing up their valuations. Kalshi raised $1 billion in a Series F round in May, valuing the company at $22 billion.

Judging by the concept alone, prediction markets may look like platforms where opportunity is equal for all participants. But results so far show there are not as many people as expected who make money from bets. The structure is closer to one in which a small number of "pro traders" take most of the profits.

A recent Wall Street Journal (WSJ) report based on direct interviews with prediction market traders and analysis of market data shows that on Polymarket, just 0.1 percent of accounts take 67 percent of profits. Fewer than 2,000 accounts took in gains close to $500 million, meaning more than 70 percent of users lost money. The average user lost between $1 and $100, while the bottom 10 percent lost an average of $4,000 per person, it said.

The same is true for Kalshi, a Polymarket rival. Far more people lose money on bets than those who win. Based on April data, for every 1 person who makes money on Kalshi, 2.9 people lose money. Kalshi expects that figure to change as the platform grows, but it is unclear whether it will.

There are reasons prediction markets, which appear to offer equal opportunity to anyone, become tilted playing fields where a small number take most of the profits.

According to the WSJ, companies that employ dozens of workers, spend millions of dollars to buy specialised sports and financial data and run trading algorithms are expanding their territory into prediction markets.

These professional traders can predict price swings and manage risk far faster than ordinary users. They can be a tough match for students, people who bet as a hobby and other small traders who make up most prediction market users. Some ordinary users rely on intuition or make emotional judgments based on information obtained from public sources.

Experts use the advantage of scale to make frequent, strategic trades and realise profits even from small price changes, supported by a focus and discipline rarely seen among ordinary investors, the WSJ reported.

Michael Bos (마이클 보스), a former professional poker player and statistician, said, "Systemically, there is no opportunity at all for ordinary investors."

So-called "mention markets" - bets on what a particular person will say in public - are also cited as areas in prediction markets where ordinary users lose a lot of money.

According to the WSJ, bets in "mention markets" often hit less frequently than expected. By contrast, professional traders are said to avoid mention markets because they are unpredictable and it is not possible to secure a reliable edge even by spending millions of dollars to obtain data.

Prediction markets began to spread from the 2010s as political betting increased, but they were far from mainstream. They then entered the mainstream at once with the 2024 U.S. presidential election as a turning point.

ㆍIs it gambling or an information source? The world of prediction markets that has grown sharply

In traditional gambling, bookmakers set odds, accept bets and pay prizes to winners. Prediction markets have no "house". Instead, users trade with each other. Platforms charge fees on trades, and those fees can vary depending on the price of the contract a user buys, the type of market and other factors.

Despite allegations of manipulation and insider trading, supporters stress that prediction markets are not gambling but rather use the wisdom of the crowd to accurately predict future events. Kalshi also cites Federal Reserve research findings that it is an effective tool for predicting economic trends. Elizabeth Diana (엘리자베스 다이애나), a Kalshi spokesperson, said, "A similar pattern of wealth concentration is appearing in many financial markets beyond prediction markets," adding, "More users make profits on Kalshi than on day trading or traditional sports betting sites."