Prediction markets have seen a rapid rise in recent months. The premise behind them is quite simple: Markets are created based on a yes or no outcome, and traders place their wagers on those outcomes, with payouts based on the amount of money on either side of the trade. Prediction markets have been featured in the news a lot because they allow traders to participate in markets not traditionally offered by sportsbooks and financial markets, such as trading current affairs and politics, yet the majority of volume on these platforms remains centered on sports.
With the World Cup coming up, this is sure to be one of the first major stress tests for their popularity, especially vis-à-vis sportsbooks. It’s not a zero-sum game, though, as platforms like DraftKings operate both a sportsbook and a new online predictions market too. Yet, it is going to be interesting to see if there is a preference one way or another.
Difference between odds and trades
As you might expect, the beauty of prediction markets is that you are not accepting odds based on the actuary calculations of sportsbooks. Instead, you are trading a market. For example, if we look at the World Cup, we can see that England have odds of +650 (13/2) on DraftKings sportsbook (13.3% chance), but the DraftKings prediction markets have England at +733 (22/3), thus a 12% chance. What that means is that traders have less faith in England than sportsbooks do. And it obviously means it would be better to back the 3 Lions via a predictions market trade.
Now, we should be clear here: those odds can change as more traders enter the market. So, continuing with England as an example: the trade odds would go down if more people backed England. The point, as such, is that there is more fluidity to these markets as more money comes in from either side. The caveat, though, is that you might not always get better odds than the sportsbook offers. It all depends on sentiment.
An intriguing prospect of trying to beat the market
Still, you can see the allure of trading against other football fans compared to taking odds from the sportsbook. Social media is rife with opinions and hot takes on football, and it’s certainly interesting to note that the crowd is not always right.
That, indeed, is the key: You want to spot value in the market where the herd consensus is wrong. In the World Cup, that could be someone like France, as so many people are sold on Les Bleus talented squad. We aren’t saying France will fail to win the World Cup, just that value might be found in an opposing trade.
Nevertheless, it will be a World Cup like no other: 104 matches in the biggest tournament ever. Betting volumes will likely hit a record, and there will certainly be opportunities for punters throughout the tournament. Whether it’s a sportsbook or prediction market you are using, remember that research, stats, and keeping a cool head remain your best tactics for success.