6 Brutal Reasons to Stay Far Away From Kalshi, Polymarket and Other Prediction Markets

Best-Selling Author, Emmy Recipient, Personal Finance Expert Since 1981

There's a seductive new pitch making the rounds on social media, financial podcasts, and even cable news: Forget boring index funds -- you can "invest" in the actual news by trading contracts on whether there'll be a ceasefire in Iran, who'll win the midterms, or whether a specific leader will still be in power next month.

The platforms selling this pitch, chiefly Kalshi and Polymarket, are calling themselves exchanges. They're calling their products event contracts. And they're attracting a wall of money from regular people who think they've found a smarter way to bet on the world.

Here's the truth: The house isn't the problem on these sites. You are. The data is in, and it shows that casual users are getting fleeced by a tiny group of sharps, bots, and people who seem to know things they shouldn't.

Before you move a dollar from your brokerage account to one of these platforms, read this.

1. The losses for regular users are worse than losses in sports betting

Prediction markets sell themselves as a fairer alternative to sportsbooks because there's no "house edge." That's technically true and practically meaningless.

A recent analysis by Citizens JMP Securities, citing data from analytics firm Juice Reel, found that the median return for a prediction market user was -8% from July 2025 through mid-March, compared with -5% for sportsbook users over the same period, according to CoinDesk.

That's right -- you're statistically more likely to lose money faster on Kalshi or Polymarket than at DraftKings. And it gets worse the smaller you are. The same research found that users trading less than $100 had a median return of -26.8%.

The only cohort that made money? Individuals trading more than $500,000, who generated a median ROI of +2.6%. If you're not moving half a million dollars, you're the mark.

2. A tiny handful of whales win everything

This isn't close. According to PredictionMarkets.org in April, market-maker Keyrock's tracking of the sector found that $15.2 billion in profits -- more than two-thirds of all money won on Polymarket -- was held by just 740 accounts. That's a tiny fragment of the nearly 2 million users trading on the platform.

Blockchain data paints the same picture. One analyst's review of Polymarket's trading history in 2025 found that roughly 70% of Polymarket's 1.7 million trading addresses have recorded realized losses, and fewer than 0.04% of all addresses captured over 70% of total realized profits -- accumulating roughly $3.7 billion in gains.

That's not a market. That's a feeding operation.

3. You're playing against bots, professional desks and 'dumb money hunters'

The pros know exactly what this looks like, and they're not hiding it. The Financial Times recently profiled traders who openly describe searching for "dumb money at the tails," primarily from casual bettors playing long-shot wagers on stretched odds.

One analytics platform even rolled out an automated counter-trading tool that lets subscribers track losing accounts and bet against whatever those users touch.

A 10x Research report put it bluntly: Casual users are trading "dopamine and narrative for discipline and edge," while profit is captured by "a tiny, informed elite who price probability, hedge exposure, and extract premium from retail-driven longshots."

When a professional desk with algorithms and real-time data is on the other side of your trade, you don't have a strategy. You have a donation. For more wealth-wrecking habits to avoid, see "13 Dumb Investing Moves -- and How to Avoid Them."

4. The insider trading on war bets is staggering -- and mostly unpunished

This is the part that should stop you cold. When the U.S. went to war with Iran at the end of February, suspiciously well-informed accounts cashed in on an industrial scale.

According to blockchain analytics firm Bubblemaps, six Polymarket accounts made around $1.2 million in profit after successfully betting on the U.S. striking Iran by the end of February.

CNN separately reported on one anonymous trader who won a staggering 93% of their five-figure wagers about Iran, even though the events they predicted were unannounced military operations -- pocketing nearly $1 million since 2024.

Another account made more than $553,000 on bets about Iran's supreme leader just before an Israeli strike killed him, NPR reported. Israeli authorities have already arrested two people for allegedly making bets on Polymarket using classified military information.

And Polymarket's own CEO once bragged to Axios that it was "super cool" that his platform creates a financial incentive for people with inside knowledge to divulge it to the market. Read that again. That's the company line. You're not an investor on this platform -- you're the liquidity that someone with a secret is draining.

5. Your wins aren't guaranteed, even when you're right

You might think: Fine, I'll do my homework and bet on things I actually understand. But being right doesn't mean you get paid. When Ayatollah Khamenei was killed in the February strikes, Kalshi users who had correctly bet on his ouster expected a payout.

Instead, trading on the market was paused while the company conducted a "further review of the situation." Kalshi's CEO eventually announced the company would issue only partial refunds, citing an internal "death carveout" rule.

One trader on a Kalshi Discord summed it up, telling NPR that getting "rugged" on a correct prediction because of a fine-print carveout was evidence that centralized platforms will always bend to compliance over reality.

Sportsbooks don't love paying out either, but at least their rulebook is written before the game starts. On prediction markets, the rules can move after you've already won.

6. The regulatory protection you think exists isn't really there

Here's where things get scary. Most Americans using Polymarket aren't using the regulated U.S. version. They're routing through a VPN to hit the offshore exchange, which sits outside any U.S. regulator's reach.

CNN reported that the company's U.S.-facing site isn't fully operational yet, but experts say Americans can easily access the offshore site with a virtual private network.

Even Kalshi, which is regulated by the Commodity Futures Trading Commission (CFTC), is a tangled mess right now. Several states, including Connecticut, Arizona, and Illinois, tried to shut down prediction market operators for running what they call unlicensed gambling.

The federal government responded by suing all three states, challenging their efforts to regulate platforms like Kalshi and Polymarket. Arizona has even filed criminal charges against Kalshi.

The courts haven't settled the basic question -- are these things finance or gambling? -- and until they do, you have no idea which consumer-protection rules actually apply to your account.

Meanwhile, members of Congress are openly warning about the mess. A bipartisan group has questioned whether the CFTC has enough authority, or interest, to police insider trading on these platforms at all. Until that's resolved, you're betting real money in a legal gray zone with rules that change based on which court ruled last.

The bottom line

Prediction markets are being marketed as the future of "informed investing." They're not investing. They're a zero-sum game where the best-informed, best-funded, and sometimes best-connected players feast on everyone else.

If you wouldn't sit down at a poker table where the other players can see your cards, don't open an account on one of these platforms.

If you're looking for a real edge, it's the same one it's always been. Own a diversified slice of the global economy through low-cost index funds, keep your costs down, and let compounding do the heavy lifting over decades. It's slower. It's less exciting. And it's the reason actual wealthy people stay wealthy.

For more pitfalls worth sidestepping, take a look at "5 Dangerous Money Traps Every Investor Should Avoid."

Betting on war, disaster, and the death of world leaders isn't an asset class. It's a trap with a slick app.