Prediction markets are a poor foundation for investing

Are prediction markets an investment?

Prediction markets let people trade contracts tied to an event, such as an election result or a sports outcome. They can be useful forecasting tools, but we do not consider them a sound foundation for an everyday investor’s long-term portfolio. A successful prediction pays because someone took the other side, not because you own a business producing earnings.

A simple binary contract might pay US$1 if an event occurs and nothing if it does not. Buying at US$0.60 risks that purchase price for a possible US$0.40 gain before costs. The price suggests a probability, but it is neither a verified forecast nor a promise of a favorable return.

Across a fully funded pair of opposing positions, the settlement redistributes the money committed. Fees reduce the participants’ combined result, excluding outside rewards or interest arrangements. An individual can profit, sometimes substantially. That possibility is different from a reason to expect a repeatable return simply by participating.

What the loss research actually shows

A July 2026 Roosevelt Institute analysis estimated US$583.5 million in aggregate Kalshi market-taker losses from July 2021 to May 15, 2026. It uses takers as a proxy for retail traders. This is an estimate of group losses, not an audited loss rate for every individual customer.

For Polymarket, researchers’ summary of their 2022–2025 sample reports that the top 1% of users captured 84% of trading gains. Profit concentration does not tell us the average person’s exact loss, but it challenges the idea that profitable participation is broadly shared.

Pew’s different six-week sample, May 7–June 19, 2026, found average net losses below US$2 across 11,989 accounts. The typical trader largely broke even. These findings should not be collapsed into one universal loss percentage: the periods, samples, and measures differ.

An account is not necessarily a unique person. Results can depend on open positions, valuation methods, fees, and incentives. The defensible conclusion is that ordinary participation does not establish an investment advantage. Large aggregate retail losses and concentrated winners deserve more attention than screenshots of a spectacular payout.

Knowing the news is not the same as finding value

To make a worthwhile trade, you need an estimate that is better than the price after costs. Knowing that an outcome is likely is insufficient if the contract already costs more than its fair probability. A 90% chance of winning can still be a bad purchase at 95 cents for a one-dollar payout.

Your counterparty may have faster data, specialized models, or a market-making strategy. Posting bids and offers repeatedly is different from opening an app after a headline and accepting the available price. These are plausible sources of advantage, not proof that a specific opposing trader is doing anything improper.

The rules also matter. A contract settles according to its defined event, deadline, and resolution process. A headline that seems to confirm your view may not satisfy those terms. You are taking a position on the written contract, including any ambiguity and settlement delay, rather than on a general opinion.

Winning six out of ten can still lose money

Suppose you make ten separate purchases of 100 contracts, each at US$0.60. Each position costs US$60 and pays US$100 if it wins. You spend US$600 in total. Six winning positions return US$600; four return nothing. A 60% win rate has only brought you back to your starting amount before costs.

Now assume an illustrative US$2 cost for each purchase. That adds US$20, so the result is a US$20 loss despite winning most of the time. This is arithmetic, not a quote from Kalshi or Polymarket. Actual charges depend on the venue, market, price, order type, and any applicable rebates.

The lesson applies equally to impressive win-rate claims online. Ask how much was risked, at what price, and what remains after all costs. Ten tiny wins followed by one large loss can produce a losing account. Counting successful predictions alone does not measure investment performance.

The platform’s economics differ from yours

Kalshi explains that it earns transaction fees. A trader can pay those fees on a losing position. Polymarket’s documentation describes taker fees in certain markets, rebate programs, and fee-free geopolitical and world-event markets. It would be wrong to say every Polymarket trade carries the same charge.

Even without an explicit platform fee, buying at the offer and selling at the bid can create a spread cost. Thin liquidity can worsen the price when you need to exit. Rewards may offset some expenses, but a temporary incentive is not evidence that an underlying strategy will remain profitable.

For you, the meaningful number is the complete change in wealth after deposits, withdrawals, remaining positions, and costs. Trading volume measures activity. A platform can grow rapidly while many participants lose, so volume growth should not be read as customer investment success.

Forecasting and hedging are different goals

Prediction markets may aggregate information, and a carefully matched contract may offset a particular existing exposure. A person hedging could accept a contract loss because another part of their finances improves. Judging that position in isolation would miss its purpose. This does not make repeated event betting a suitable savings plan.

For long-term wealth building, consider productive assets, costs, time horizon, and diversification. A broad, unleveraged equity fund spreads exposure across businesses. It can fall sharply and is unsuitable for money needed soon, but its investment rationale does not require repeatedly beating another trader’s event probabilities.

If you choose to speculate, separate that decision from rent, emergency savings, and long-term contributions. Set a cash limit before opening a market and avoid increasing it to recover losses. The ability to make another prediction immediately is a feature of the interface, not a reason to make another investment.

What this means when using Lex

Our preference is for decisions grounded in what an asset represents, what it costs, and why you want to hold it. Lex offers supported assets through a self-custodial wallet, including stock tokens for eligible accounts. A tokenized stock has issuer terms and additional risks; it is not automatically equivalent to an ordinary brokerage share or a diversified index fund.

Do not assume that a familiar company name makes a concentrated position safe, or that self-custody guarantees a return. Review the asset, quote, liquidity, and issuer conditions. A long-term plan can require products outside Lex; this guide does not imply that Lex offers the broad index funds discussed above.

The practical principle is straightforward: choose an investment because it fits your goals and risk capacity. A stream of events to trade, a leaderboard, or a story about an enormous win is a weak substitute for that reasoning.