With the 2024 U.S. election just days away, political betting is surging as traders and casual bettors place big wagers. Election prediction markets like Polymarket and Kalshi are capitalising on this fervour, while established platforms such as PredictIt continue to engage in legal battles with the Commodity Futures Trading Commission (CFTC), further complicating the landscape of political betting. These platforms are not only gaining attention for the amount of capital being invested but also for the market’s potential to sway public perception.

Prediction markets allow bettors to trade shares tied to specific political outcomes, such as who will win the presidency or whether a candidate will drop out. Shares typically range between $0 and $1, with those tied to the winning outcome paying out $1, while the rest expire worthless. Despite the simplicity of this model, these markets have displayed unusual behaviour, with significant bets placed on improbable outcomes, such as the re-election of Donald Trump, against the backdrop of polls and election models showing a more moderate reality.

Comparing PredictIt, Kalshi and Polymarket

Polymarket shows a robust user base that spikes during key events with approximately $2 million in open interest. PredictIt, with around $4 million in open interest, boasts a total trading volume of $10 million in the last election cycle, attracting academics and analysts alike. Kalshi, seeking to broaden its appeal, reports about $3 million in open interest and has recently seen notable individual bets reaching $500,000, reflecting an effort to democratise the betting experience. Comparing capital wagered, 2020’s total of $10 million is projected to soar past $25 million in 2024.

This growth indicates not only increasing engagement but also a shifting narrative around political predictions, where betting markets are becoming vital in shaping public perception and electoral strategies.

Spread betting’s unique place as a financial instrument

Spread betting originated in the UK in the 1970s and was initially linked to the financial markets, but its roots differ slightly from derivatives trading. It began when Stuart Wheeler, a City trader, founded IG Index in 1974 to allow people to bet on the price of gold without owning it. This concept quickly expanded to cover various financial markets, such as indices, stocks, and commodities, making it popular with those interested in speculating on price movements.

Though spread betting is not technically a derivative, it shares similarities with derivative instruments. Both involve speculating on the price of an underlying asset without directly owning it. In spread betting, the bettor is predicting price movements, whereas in derivatives like futures and options, traders enter contracts that give them the right or obligation to buy or sell an asset at a future date. Both forms of trading are leveraged, allowing for potentially higher returns (or losses) based on smaller initial capital.

The key distinction is that spread betting is classified as gambling in some jurisdictions, such as the UK, whereas derivatives are financial instruments regulated as part of the investment markets. However, both require a deep understanding of market movements and risk management strategies.

Manipulation or momentum?

A key player in these election betting markets is the now infamous “FrediGroup,” a collection of anonymous accounts that have invested nearly $40 million in Trump-related markets on Polymarket. The group, believed by some to be a single entity, has amassed more than 20 million shares in Trump, with one of its largest accounts, @Fredi9999, holding over 20 million shares in the presidential market alone.

According to the Financial Times, much of the market movement has been driven by large limit orders from this small group of accounts, sparking debate over whether these trades represent genuine beliefs or market manipulation . Some internet sleuths have posited that these accounts may be linked and acting in concert to artificially inflate Trump’s chances, potentially to influence both public perception and related adjacent markets. Theories abound, including the possibility that FrediGroup is attempting a pump-and-dump scheme—driving up prices before offloading shares at a profit—or even trading on insider information.

Barnard economics professor in an interview with the Financial Times, raised the possibility that the group may possess inside information detrimental to Kamala Harris’s campaign, or another key player in the election, that could shift the odds in Trump’s favour. Though the election outcome remains uncertain, the mere existence of such speculation demonstrates how political betting markets can shape narratives beyond what traditional polling can achieve .

Numbers behind political spread betting

As we delve deeper into the mechanics of these prediction markets, it’s essential to understand the broader implications. The political betting market, like any financial market, thrives on liquidity. In Polymarket’s case, the market’s liquidity allows traders to place sizable bets that can move the price of political outcomes. In early October 2024, total open interest across U.S. presidential markets on platforms like Polymarket exceeded $500 million. This is a significant increase from the $300 million seen during the 2020 elections. The sheer volume of bets has given these markets visibility, but it has also introduced volatility, with odds shifting based on even minor political developments.

It’s also important to consider the cost basis of the traders. For example, FrediGroup’s average share price for Trump-related bets is approximately $0.55 per share, meaning the group is already playing in a high-risk arena, where even minor dips in Trump’s odds could translate to significant losses. As of the end of October 2024, FrediGroup’s holdings had increased in value by over $2 million, signalling a strong upward momentum for Trump, at least in the eyes of market participants.

But could this be a bubble waiting to burst? Even if traders like FrediGroup are genuinely betting on a Trump victory, their holdings may distort the market’s true prediction power. As the points out, the danger in betting markets lies in their vulnerability to manipulation, particularly in thin markets. With fewer participants and low liquidity, large players can move the needle in ways that don’t necessarily reflect broader sentiment .

Perception of power, betting markets vs. polls

One of the most interesting dynamics at play in political betting is how it contrasts with traditional polling methods. While polls provide a snapshot of voter sentiment, prediction markets are inherently speculative, driven by the motivations and strategies of traders rather than the broader electorate. Elon Musk, who has been an outspoken proponent of prediction markets, recently tweeted that they are “more accurate than polls,” which led to significant discourse about their predictive accuracy. However, research has consistently shown that while betting markets can sometimes be ahead of the curve in reflecting sudden changes, they are not immune to errors and can be swayed by speculative players rather than actual voter data .

In the case of the 2024 election, betting markets are offering a different picture from many pollsters, with Trump’s odds surging even in the face of legal challenges and polling deficits. This discrepancy illustrates how market movements—whether reflective of genuine sentiment or driven by speculative traders like FrediGroup—can alter public perception. Pundits and conservative commentators have jumped on this data, presenting Trump’s improved odds as proof of a “silent majority” backing his return to the White House. Screenshots of Polymarket odds have circulated widely on social media, reinforcing narratives that may not align with polling data but carry the weight of perceived market wisdom .

Political betting’s limitations and election night

Despite the fascination with prediction markets, it’s crucial to understand their limitations. For one, many platforms impose limits on how much individual traders can bet, capping exposure to $850 on PredictIt, for example. This can distort markets by discouraging large-scale trades based purely on accurate forecasting and encouraging riskier, more speculative bets. Additionally, fees on platforms like PredictIt—amounting to over 5 percent on withdrawals—add further friction, skewing incentives for participants .

The real test for these markets will come on election night itself, when the odds will reset to either 0 percent or 100 percent as key swing states report their results. In this compressed window, any speculative trading or market manipulation will be ruthlessly exposed. In 2020, some platforms famously left betting on the presidential election open even after Joe Biden was declared the winner, a mistake unlikely to be repeated this year .

The convergence of polling, betting markets, and media narratives offers a fascinating glimpse into how modern political forecasting operates. While prediction markets provide a valuable real-time gauge of sentiment, their predictive accuracy should always be viewed through a critical lens. Markets can be manipulated, and large players like FrediGroup remind us that even in a supposedly rational system, big money can distort reality. Whether Trump’s odds reflect genuine momentum or strategic trading remains to be seen, but the lesson for election night is clear: approach the markets with skepticism, even as they become increasingly influential in shaping the discourse around this historic election.

Ultimately, as the warns, it’s essential to take political betting markets “literally, not seriously” when it comes to their impact on actual outcomes . They are tools for speculation, not crystal balls for election results.

Unlock winning moments: Discover the best odds on SiGMA Play.