Wall Street Enters Prediction Markets, End of the Retail Investor Carnival Era

Article: Nusk, Deep Tide TechFlow

It has finally arrived. The prediction markets once built by political supporters, speculative retail investors, and wool parties are now welcoming a silent yet deadly new wave of players.

According to the Financial Times on Thursday, several well-known trading firms, including DRW, Susquehanna, and Tyr Capital, are forming dedicated prediction market trading teams.

Last week, DRW posted a job listing offering up to $200,000 in base annual salary for traders capable of “monitoring and trading active markets in real-time” on platforms like Polymarket and Kalshi.

Options trading giant Susquehanna is hiring prediction market traders who can “detect mispricings,” identify “abnormal behaviors” and “inefficiencies” in prediction markets, while also building a dedicated sports trading team.

Crypto hedge fund Tyr Capital continues to recruit prediction market traders with “experience in running complex strategies.”

Data supports this expansion ambition.

Monthly trading volume surged from less than $100 million at the beginning of 2024 to over $8 billion by December 2025, with a record single-day trading volume of $701.7 million on January 12.

When the pool of capital becomes deep enough to support the scale of these giants, Wall Street’s entry becomes inevitable.

Arbitrage First

In prediction markets, institutions and retail investors are playing fundamentally different games.

Retail investors often rely on fragmented information to predict individual events, which is essentially gambling, while institutional players focus on cross-platform arbitrage and market structural opportunities.

In October 2025, Boaz Weinstein, founder of hedge fund Saba Capital Management, stated at a closed-door meeting that prediction markets could allow portfolio managers to hedge investments with greater precision, especially regarding the probabilities of specific events.

He stood next to Polymarket CEO Shayne Coplan and said, “A few months ago, Polymarket showed a 50% chance of recession, while the credit market indicated only about 2% risk. You can come up with countless pairs of trades that were previously impossible.”

According to Weinstein, hedge fund managers can buy contracts on Polymarket that say “the economy will not recession,” because the market perceives a 50% chance of recession, making these contracts relatively cheap.

Meanwhile, they can short bonds or credit products that would plummet during a recession, as the credit market only prices in a 2% chance of recession, so these products are still quite high in price.

If the economy actually enters a recession, you might lose a little on Polymarket, but make a big profit in the credit market because those overvalued bonds will crash.

If the economy does not recession, you profit on Polymarket, and might lose a little in the credit market, but overall, you still come out ahead.

The emergence of prediction markets provides a brand-new “price discovery tool” for traditional financial markets.

The Privileged Class Arrives

What tilts the balance even further are privileges at the regulatory level.

Susquehanna is Kalshi’s first market maker and has reached a contract agreement with Robinhood.

Kalshi offers many benefits to market makers: lower fees, special trading limits, and more convenient trading channels, though specific terms have not been disclosed.

The entry of market makers will quickly change this market.

Previously, prediction markets often suffered from liquidity shortages, especially for niche events. When you want to buy or sell large amounts of contracts, you may face significant spreads or struggle to find counterparties.

Professional institutions will rapidly eliminate obvious mispricings. For example, price differences for the same event across different platforms, or clearly unreasonable probability pricing, will be quickly smoothed out.

This is not good news for retail investors. Previously, you could find “Trump’s victory” at a 60% probability on Polymarket and 55% on Kalshi, allowing simple arbitrage. Such opportunities will likely disappear in the future.

With Wall Street PhDs earning hundreds of thousands of dollars annually leading the way, prediction contracts may also enter an era of specialization and diversification, beyond just single-event predictions, such as:

1. Multi-event combination contracts, similar to parlay sports betting

2. Time series contracts, predicting the probability of an event occurring within a specific timeframe

3. Conditional probability products, such as “if A occurs, what is the probability that B occurs”

……

A review of financial history shows that from forex to futures, and now to cryptocurrencies, each emerging market develops along a similar trajectory: retail investors ignite the spark, ultimately taken over by institutions.

Prediction markets are repeating this process. Technological advantages, capital scale, and privileged access will ultimately determine who can stay in this game of probabilities until the end.

For retail investors, although there may still be a glimmer of hope in long-term predictions or niche fields, they must face reality: once Wall Street’s sophisticated machinery starts operating at full speed, the era of easy profits from informational advantages may be gone for good.