The insider's guide to market making on prediction markets

FanDuel and DraftKings have both announced they are market making on prediction markets, so market making now matters across US sports betting. In this guest-free episode of Inside Prediction Markets, hosts Chris and Henry explain who sits on the other side of a trade.

In this episode

• Both operators' announcements concern market making on combinations, and Kalshi's latest numbers show over 30% of its volume is in combos, primarily sports parlays (0:34).

• Chris defines market making as "willingness to take both sides of a play if the edge is there", and describes three types: position-agnostic, directional, and a combination of the two (5:00, 6:27).

• As an example of sportsbook pricing gaps, Hard Rock offered Jake Paul at +400 and Anthony Joshua at -650, while Novig traded Joshua around -1,000 (14:20).

• Getting fair value wrong on a tight spread against sharp flow is a danger, and poor risk management can bust a market maker "in a couple of trades" (18:33, 19:55).

• A market maker is not a sharp, one host says, because a sharp originates a price and spots when the market is wrong, whereas a market maker needs a great working model of how sharps think (28:00).

• On whether prediction markets are peer to peer, a host says you may still be trading against "Joe from the deli", just through a market maker, paying a couple of extra cents for an instant match (30:12, 30:43).

Episode from Inside Prediction Markets, published on YouTube.