How to Arbitrage: Finding Opportunities Across Prediction Markets and Sportsbooks

The word ‘arbitrage’ describes a short-term market price discrepancy, which usually occurs across different platforms. 

This creates a limited window in which you can buy a contract in one market and simultaneously sell it at a higher price in another. The objective is to leverage arbitrage trades quickly and lock in risk-free (albeit nominal) profits.

But what are the key arbitrage strategies, and which factors do you need to be aware of when implementing them?

How to Identify Arbitrage Opportunities

To determine potential arbitrage opportunities, you’ll need to analyze contract prices and infer the implied probability of particular outcomes occurring. If the combined implied probability of two mutually exclusive outcomes is less than 100%, you’ll have found a viable arbitrage trade.

For example, you can currently trade “Yes” on the Democrat Party in the US to win the Senate in the November 2026 Midterms at $0.49 cents. This price is available on Kalshi.

Conversely, you can buy “No” shares on the Democrats sweeping the Senate at the same price — $0.49. This means that both outcomes have an implied probability of 49% on their respective platforms, creating a combined value of just 98%.

One of these outcomes is guaranteed to settle at $1.00 per share. So, if you subsequently secure these exact prices when executing in real-time, you’ll bank a 2.04% gross return on your capital, regardless of the outcome.

Arbitrage Trading Challenges

Pursuing a cross-exchange arbitrage strategy for binary outcomes is relatively straightforward, both in terms of identifying opportunities and execution.

However, this type of strategy can still be undermined by the practicalities of live execution, settlement rules, and transaction fees:

• Dynamic Transaction Fees on Kalshi: Polymarket doesn’t charge maker fees, but Kalshi applies a “dynamic transaction fee” on all trades with a probability above 50%. While this wouldn’t apply to the example above, executing trades above 50% with a similar yield could completely eliminate your profit margin.

• Market Settlement Rules: Even in binary markets, there may be market settlement rules that undermine your arbitrage trade. For example, if Kalshi defines “winning the Senate” as holding 51% of seats or higher and the vote yields a 50-50 tie, your “Yes” trade would immediately resolve as “No”. This would close the arbitrage window.

• The Length of Contract: In longer-term markets that may not settle for six or more months, you’ll be required to tie up a percentage of your capital for an extended period of time. This will be in the pursuit of relatively low returns, too. Although the midterms will take place on November 3rd, 2026, legal challenges or historically close votes could push the resolution back to early 2027.

Hedging Across Prediction Markets and Sportsbooks

By identifying arbitrage opportunities in short-term markets, you can manage your bankroll more easily. One example is to target sports betting markets and props, particularly those associated with a single game.

In this case, you can hedge your positions across prediction markets and betting sites. For example, ahead of the Cincinnati Open Round of 16 clash between Jakub Mensik and Thiago Agustin Tirante, the former is priced as high as +160 on some sportsbooks — an implied probability of 62.5%.

On Kalshi, however, you can trade “No” on Mensik winning at $0.35 cents (35% probability). The cumulative implied probability value across both outcomes here is 97.5%, creating a favorable arbitrage margin of 2.5%.

So, place a wager on Mensik winning via the sportsbook, then buy “No” shares on the Czech player on Kalshi.

Outcome	Price / Odds (Implied Probability %)	Arbitrage Margin	Total Return (on a $100 Stake)
Mensik to Win	1.60 (62.5%)	2.5%	$260.00
Mensik Not to Win	$0.35 cents (35%)	2.5%	$273.25

When using this strategy, be sure to target sports where a draw is eliminated as a potential outcome. For this to work, there needs to be a binary market, where there are only two possibilities. 

I’d also recommend increasing your market trade and stake amount in order to guarantee the maximum possible profit via hedging.

The Last Word

Arbitrage trading is an excellent way of minimizing risk and guaranteeing nominal profits. This also lets you hedge positions and identify opportunities across both prediction market exchanges and sportsbooks. 

However, it’s important to factor in real-time execution challenges and settlement rules, while also sizing your trades to maximize profit.