Prediction markets are often presented as efficient aggregators of information. High liquidity, large trading volume, and tight spreads are commonly interpreted as signs of accuracy.

However, high volume does not guarantee correct pricing.

Through recent analysis of political prediction markets, I found that some of the most active markets still embed significant structural weaknesses that limit their reliability as forecasting tools.

High trading volume signals that:

• many participants are involved

• capital is actively deployed

• consensus exists around a given outcome

What it does not guarantee is that participants are:

• well-informed

• interpreting the contract correctly

• pricing resolution mechanics accurately

In practice, volume often reflects shared narratives, not independent information.

In political and macro markets, a large share of volume is driven by narrative traders.

These participants:

• trade based on headlines

• extrapolate polling momentum

• anchor on media consensus

When narratives dominate, prices can converge quickly — but not necessarily correctly.

Consensus can form before key uncertainties are resolved.

One of the most common failures in prediction markets is the underestimation of resolution risk.

Resolution risk arises when:

• contract language is ambiguous

• the resolving source is loosely defined

• multiple interpretations of “winning” exist

Even if the real-world outcome seems obvious, poorly specified resolution criteria can materially affect payouts.

High volume does not correct this problem.
In fact, it can mask it.

Liquidity improves execution, not definitions.

A market can be:

• liquid

• heavily traded

• widely followed

and still rely on:

• vague resolution sources

• semantic shortcuts

• informal “consensus” rather than explicit authorities

When contract design is weak, price efficiency applies only within a flawed structure.

For analysts, the goal is not to express opinions — it is to maximize expected value under uncertainty.

In markets where:

• edge is marginal

• resolution mechanics dominate outcomes

• ambiguity outweighs probabilistic advantage

the rational decision is often NO TRADE.

Choosing not to trade is not a failure of conviction.
It is an expression of disciplined analysis.

Prediction markets are powerful tools, but they are not infallible.

High volume can coexist with:

• mispriced probabilities

• unresolved structural risk

• overconfidence driven by narrative alignment

Understanding when not to trust the price is as important as identifying when the market is wrong.

For analysts, the real edge lies not in trading more — but in knowing when the structure itself is the risk.

Prediction markets are often presented as efficient aggregators of information. High liquidity, large trading volume, and tight spreads are commonly interpreted as signs of accuracy.

However, high volume does not guarantee correct pricing.

Through recent analysis of political prediction markets, I found that some of the most active markets still embed significant structural weaknesses that limit their reliability as forecasting tools.

High trading volume signals that:

• many participants are involved

• capital is actively deployed

• consensus exists around a given outcome

What it does not guarantee is that participants are:

• well-informed

• interpreting the contract correctly

• pricing resolution mechanics accurately

In practice, volume often reflects shared narratives, not independent information.

In political and macro markets, a large share of volume is driven by narrative traders.

These participants:

• trade based on headlines

• extrapolate polling momentum

• anchor on media consensus

When narratives dominate, prices can converge quickly — but not necessarily correctly.

Consensus can form before key uncertainties are resolved.

One of the most common failures in prediction markets is the underestimation of resolution risk.

Resolution risk arises when:

• contract language is ambiguous

• the resolving source is loosely defined

• multiple interpretations of “winning” exist

Even if the real-world outcome seems obvious, poorly specified resolution criteria can materially affect payouts.

High volume does not correct this problem.
In fact, it can mask it.

Liquidity improves execution, not definitions.

A market can be:

• liquid

• heavily traded

• widely followed

and still rely on:

• vague resolution sources

• semantic shortcuts

• informal “consensus” rather than explicit authorities

When contract design is weak, price efficiency applies only within a flawed structure.

For analysts, the goal is not to express opinions — it is to maximize expected value under uncertainty.

In markets where:

• edge is marginal

• resolution mechanics dominate outcomes

• ambiguity outweighs probabilistic advantage

the rational decision is often NO TRADE.

Choosing not to trade is not a failure of conviction.
It is an expression of disciplined analysis.

Prediction markets are powerful tools, but they are not infallible.

High volume can coexist with:

• mispriced probabilities

• unresolved structural risk

• overconfidence driven by narrative alignment

Understanding when not to trust the price is as important as identifying when the market is wrong.

For analysts, the real edge lies not in trading more — but in knowing when the structure itself is the risk.