u/shumpitostick

I thought people in this sub might be interested but I found what I think might be one of the best margin rates and availability currently in the market. It's a company called Frec and they do Direct Indexing. You can read on their website what this means but essentially it allows you to do more tax loss harvesting, getting money back in taxes now so you have more to grow your portfolio (yes you do need to pay for it eventually, unless like me you plan on donating it to charity, but the tax deferral allows you to get more compound interest). You can invest in S&P 500 or some other indexes and the costs are only marginally higher than ETFs. Minimum investment is $20k.

Anyways arguably the most important thing they do is give you cheap and plentiful margin. They say you get up to 70% of your portfolio value but as you can see here I have about 2x right now and the limit just keeps going up.

If you want to max out your available margin you need to borrow more every day or so, they don't give it all at once. In this case I was just borrowing more once every few days and this is where I am after about a month.

Anyways if you're interested you can use this referral link, it gets you $250 if you invest.

I've seen endless discussion about healthcare but I've never seen any serious attempt to really explaining what the issue with the system is. The first part of the puzzle is that Americans spend a lot on healthcare. Now you might say and perhaps you are right that it's because health insurance in the US is private. But why? Obviously a single payer covers everyone and for affordable costs, that's the point of it, but why would it be much cheaper? You still need to pay for a similar amount of healthcare. Also, insurance companies actually have very thin margins. They're not pocketing all the money in the system, so a single payer won't solve that.

Now perhaps you might say that it's because Americans consume a lot of healthcare, because they can, and that appears to be true. If you plot health expenditure by individual consumption rather than GDP, you can see that Americans actually pay what you would expect for their level of total consumption. Healthcare expenditure is notoriously inelastic and people will pay as much as they can afford if they are seriously sick.

But are they getting their money's worth? US life expectancy is 56th in the world, similar to countries like Albania and Panama. America has some of the top medical universities and best doctors in the world. How can it be so low?

Now I hear you say, oh, it's inequality. But wait, Medicare exists, it's actually a very powerful health insurance and since the ACA (thanks, Obama!) almost all Americans now have health insurance. Hospitals offer a plethora of payment options. Even if the costs can sometimes be absurd, it's rare that somebody goes untreated. If you look at the expenditure graph, you will see that out-of-pocket costs in the US are not out of the ordinary, it's actually the insurance costs that are crazy high.

So what are the core problems? Can you explain or refer me to some readings?

Prediction markets seem to be everywhere in the news nowadays. Unfortunately, the news, and moreso, the social media interpretation of these news tends be written by people who have very little understanding of prediction markets which leads to a lot of some misunderstandings of prediction markets. I would like to bring the perspective of an insider, somebody who has been active in prediction markets for along time and knows their ins and outs.

A bit about myself, I've been trading in prediction markets since 2022. I've seen them grow and monetize. It used to be something I did just for fun but it turns out I am very good at it. I was in the top 20 accounts on Manifold back when that was not for real money (except charity). In July last year I joined Kalshi and since then I made around $35,000 in profit, and I believe I was positive in every month.

The goal of this post is to give you a more nuanced understanding of prediction markets. While this may come out looking like a defense of prediction markets because I am about to argue against some evil caricature of prediction markets that has become increasingly common, it is not meant to be. There are legitimate reasons that prediction markets are contentious. I just want to see a better debate that is rooted in facts, not caricatures.

Myth 1: Prediction markets are worse than traditional gambling

There are important differences in incentives and monetization between traditional sports gambling or casino games and prediction markets that are fairer and more favorable to bettors.

First, in traditional sports gambling and casinos, you usually play against the house. Since the house wants to make a profit, their incentives are to fuck you over as thoroughly as possible and take your money.

In prediction markets, on the other hand, you play against somebody else. The "house" acts as a broker, facilitating trades between the two sides. In addition, since the house is not a side to the bet, they are not taking any risk. In order to mitigate risks, a bookie has to have a large "edge" so if they misprice the odds or get unbalanced bets on each side, they don't lose money. Prediction markets on the other hand don't make their profits out of winning bets, the make it primarily by charging trading fees.

The cut the broker takes on prediction markets is much lower. For example, If you wanted to bet on both sides of a high volume sports market on Kalshi, you can pay up to 4% more than you win (2% spread, up to 2% in fees, less for more lopsided bets). If you use limit orders, you can get something like 1%. On sportsbooks, you will pay 10% more than you win.

Sportsbooks and casinos have an interest to get the worst bettors to bet more and block the best bettors. They are known to increase the limits of customers who lose a lot of money and they block "sharps" who can manage to consistently make a profit, creating a situation where those sharps have to play underhanded tricks to make a profit. Casinos, for example, will straight up ban you if they see you winning too much and tell all the other casinos to also ban you.

Now of course, prediction markets are far less regulated than gambling and perhaps they shouldn't be, but I think making any argument that they should be more regulated cannot be supported by facts.

Myth 2: Prediction markets have no legitimate uses

I'm not going deny that many people just use prediction markets for gambling. However, that is not the full story.

Businesses use prediction markets to hedge outcomes. Economic markets such as markets on the Fed decision, job numbers, etc. allow companies to manage their exposure to the macroeconomic environment. Event markets such as the ones around shipping in Hormuz can be used to manage geopolitical risk.

In fact, this is the reason that Kalshi got founded. It wasn't to get more people to gamble on sports. It was because Tarek Mansour was frustrated with the very indirect way that traders had to manage their exposure to Brexit.

The other legitimate use of prediction markets is as a source of information. Worried about the Hantavirus outbreak? You'll be relieved to find out that Kalshi thinks it has a low chance of occuring. Is Trump serious about invading Greenland? Why don't you

check. We have been starting to see more widespread use of prediction markets as information sources recently, with them being cited in many news articles. Being able to have an impartial source of information in an age of misinformation is very valuable. It can also be practical to daily lives. I've even been watching the markets about Iran to help me plan the ways that the war might affect my personal life.

Myth 3: Prediction markets are completely inaccurate

The craziest version of this belief is some people who think that simultaneously prediction markets are inaccurate and hold no useful information and that insider trading is rife so it is impossible to make money on prediction markets. I mean, if insider trading was everywhere prediction market info would be very valuable.

The research picture is more nuanced. Prediction markets outperform political polls on long time horizons. They slightly outperform bookies. They outperform averages of predictions and expert predictions.

The mechanics of this accuracy are similar to the ones at play in the stock market. Any inaccuracy is an opportunity to make money. The low-skill betting accounts act as a sort of bounty for that skilled traders can find and exploit the mass psychology of uninformed bettors.

The literature also documents some biases, which is great for people like me because otherwise we couldn't make much money. Prediction markets at the moment are quite far from being as efficient as the stock market, meaning they incorporate all publicly available information. Prediction markets seem to be especially bad at pricing in changes when things happen quickly. It takes a while for markets to figure out how impactful new information is.

I think the research on accuracy, can distract from what is perhaps the most important use of prediction markets - to produce predictions where no benchmark exists. The capability to put a percentage on outcomes as varied as shipping in the Straits of Hormuz and new music album sales is pretty valuable.

Myth 4: The only way to win is to have insider information

I've seen this one quite a lot, it's always funny to me because I am a living proof that it is not true. I have never been an insider to any market nor have I tried to manipulate anything. I'm not even close to being the best. There are people like Domer who are professional bettors who made millions in profits, consistently. Some of them are quite transparent with how they do it.

Let me explain how what I do works. First, there is a kernel of truth in this myth, in that everyone is working from the same publicly available information. The hard part is taking the often confusing, conflicting, and sparse public information and turning it into a probability. Often, however, you don't even need to do that. Instead, a better approach is to look for mispricings, cases where the price just does not seem reasonable for some reason. For example, I made a couple grand when the Iran war started because people overreacted and pushed the price on stuff like Reza Pahlavi leading Iran this year close to 50%. I made a grand by putting a limit order when I expected people to overreact to news of Trump and Iran nearing an agreement, knowing that it is not a nuclear deal.

There are other ways of making money. There are many successful bots. Some people specialize in various kinds of markets.

Myth 5: The biggest problem traders face is manipulated markets

There are generally three kinds of controversial markets. First, there are those that are manipulated - bettors are using tricks to determine the underlying reality that resolveds the market. This is the kind of issue that sparks media attention the most but in fact it is exceedingly rare. Not once in the hundreds or thousands of markets I've bet on have I witnessed manipulation.

Second, there is insider trading. People who don't determine the outcome but they know it anyways. This is certainly more common and there have been some high profile cases. In all of my experience, I have encountered it only once that I know of, in a market about Google person of the year that spiked with a complete dark horse answer several hours before the results were released. People on Polymarket seem to have found the culprit, presumably a Google employee.

It's also important to contextualize this with the fact that insider trading exists in the stock market as well. Around 20%

of stocks experience price spikes before a merger or acquisition. I have personally had friends tell me they received insider information about stocks.

However, there are ways to catch insider trading. Insider trading is against the ToS of both Polymarket and Kalshi and caught accounts get banned and may be fined. To make a lot of money from insider trading, you need to trade aggressively, putting orders that push the market price. Since most prediction markets don't have very high volume, it makes it pretty easy to catch somebody who is driving the market price all by themselves. This mechanism puts a cap on how much insiders can realistically influence markets. Anyways, practically I have bet on plenty of topics which had potential insiders, and practically you can kind of just ignore it. The risk that an apparent mispricing comes from insider trading appears to be significantly smaller than the mispricing coming from human stupidity, in my experience.

The third and most common issue, which gets little press, is controversial resolutions. I have been a part in almost a dozen of these by now I think. A controversial resolution is when an ambiguity arises in the contract, an edge case occurs and at least some bettors disagree with the resolution. This can be quite bad because many bettors end up feeling scammed. Here's an example. Kalshi has these things called mention markets which are about things that people say. There was one for Elon saying "Tesla" at some event. Well, Elon has a bit of an accent and when he says "Tesla" it sounds like "Tesler". Apparently that was enough to convince Kalshi that Tesla was not, in fact, said. To add to the controversy, months later there was a contract for Elon saying "supercharger". When Elon says "supercharger", the R is silent. This time, Kalshi *did* rule that he said supercharger, defying their own precedent.

This kind of stuff happens quite often and it's really annoying. Markets devolve into interpretation challenges and getting into the mind of Kalshi's markets team. It's not fun, noobs get ripped off, and people lose real money because of Kalshi's ambiguity. Nobody likes that.

Sometimes there is also a mix of manipulation and controversial resolutions when people who are invested in the market influence the resolution. This doesn't really happen on Kalshi, but Polymarket uses this weird DAO consensus algorithm to resolve markets rather than doing the resolutions themselves. Resolutions are voted on by holders of some crypto token, which include some of Polymarket's whales. Perhaps worse, this algorithm strongly incentivizes consensus and you will lose tokens if you vote against the majority. The emerging social dynamic is that some whale will write an explanation for their vote 1 minute after the voting begins, everyone follows the whales because they don't want to lose money, and thus they can create their own reality. For example, they decided that Zelensky didn't wear a suit

when according to every major news source, he did.

Thankfully, Polymarket is moving to address it and will start resolving their own markets at some point.

Myth 6: All the stories about manipulated and insider traded markets are true

While there is no denying that there are cases where both of these have happened, the news reports about them often have misleading headlines, speculation presented as facts, and ocassionally even outright lies.

Let's take the recent story

of the so-called weather sensor that was manipulated with a hair dryer in France. Looks pretty bad. However, if you read closely, you will realize that this is essentially complete speculation. No evidence of tampering has been found. Now look at the market. There is no evidence of an anomalous pricing here. A few people bought 22C at a very low price days before, as is normal. There is no single trader who has by far the biggest YES position.

Other examples include the Nobel prize for Peace which the investigation concluded was not a leak, merely somebody who noticed that Machado's photo was uploaded to the website before the announcement, as well as the strikes on Iran, which the media said we're suspicious before the market volume was unusually high, neglecting to mention the fact that that market was until the end of month. There is no other evidence that I am aware of and no spike before the attack itself.

Conclusion

While many of the risks of prediction markets are overblown, there are nonetheless legitimate reasons to oppose them. Most importantly, it does seem like the majority of users on these platforms are simply gamblers. Sports betting on topics that are essentially identical to those of traditional bookies takes up a large majority of the volume of prediction markets. Bookies like Draftkings have used prediction markets as a cynical ploy to expand to states which don't allow gambling, make gambling for 18-21 yos legal, and relieve regulatory burden.

The new topics that prediction markets touch on offer challenges. Markets on topics of national security, while they can be sometimes beneficial to decision makers, risk rewarding leaking state secrets. I think it would be reasonable to limit the creation of prediction markets on certain things that should not be incentivized.

Anyways, I hope you learned something new. Feel free to use this thread as an AMA. I can answer any questions you have.

Submission statement: Good article for explaining how Israel's establishment thinks about the war in Iran