What Is Prediction Market Arbitrage?

The Basics

In a prediction market like Polymarket, you can buy shares of YES or NO on a question like "Will X happen?" Each share pays out $1.00 if correct, and $0 if wrong.

Normally, YES + NO prices add up to approximately $1.00 (e.g., YES = $0.55, NO = $0.45). The market is "efficient."

When Arbitrage Exists

Arbitrage occurs when YES + NO prices sum to less than $1.00. This means you can buy BOTH sides and guarantee a profit regardless of the outcome.

Example: YES = $0.45, NO = $0.50, Total = $0.95. You spend $0.95 and are guaranteed a $1.00 payout — a $0.05 profit (5.3% return).

The Fee Factor

Polymarket charges a 2% fee on winnings. So your net payout is actually $0.98, not $1.00. This means YES + NO must sum to less than $0.98 for a true, fee-adjusted arbitrage opportunity.

This is why our scanner filters for profit after fees — we only show real opportunities.

Why Are Arbs Rare?

• Efficient markets: Sophisticated traders and bots constantly monitor prices and close gaps within seconds.
• Fees eat margins: The 2% fee eliminates most would-be opportunities.
• Liquidity constraints: Even when a price gap exists, there may not be enough liquidity to execute the trade profitably.

Types of Arbitrage

• Same-event arb: YES + NO on the same market sum to < $0.98. Buy both.
• Multi-outcome arb: In a multi-option market (e.g., "Who will win?"), the sum of all YES prices is < $0.98. Buy all outcomes.
• Cross-platform arb: Price differences between Polymarket and other prediction markets (not covered by this tool).

Key Formulas

• Arb exists when: YES + NO < 0.98 (after 2% fee)
• Profit per dollar: ($0.98 - total_cost) / total_cost × 100
• Optimal bet sizing: Allocate proportionally to lock in equal payouts both ways