The rise of conditional probability trading, Wall Street is shaping the prediction market

Prediction markets have now reached a new turning point. Once dominated by individual investors and airdrop hunters, this market is increasingly being entered by Wall Street giants. According to recent reports from the Financial Times of the UK, well-known trading funds such as DRW, Susquehanna, and Tyr Capital have begun forming dedicated prediction market teams, actively recruiting traders. Particularly targeted are those with the ability to trade complex derivatives, including conditional probabilities.

Institutional Capital Enters with Offers of $100 Million Annual Salary

The scale of institutional entry is astonishing. Through job postings, DRW has offered up to $200,000 in annual base salary to traders responsible for real-time trading on platforms like Polymarket and Kalshi. The massive options trading firm Susquehanna is continuously recruiting prediction market traders capable of “finding mispriced fair values and capturing inefficiencies.” Cryptocurrency hedge fund Tyr Capital is also constantly injecting traders who are “already executing complex strategies.”

Behind this massive influx of personnel is the rapid growth of the market. Monthly trading volume surged from less than $10 million in early 2024 to over $8 billion by December 2025, with a single-day trading volume exceeding the all-time high of $700 million on January 12 of this year. As the market matures enough to accommodate substantial institutional capital, Wall Street’s entry has become an inevitability rather than an option.

From Arbitrage to Conditional Probabilities, the Gap in Technology Widens

Institutional players and individual investors are now playing entirely different games. Individuals rely on single-event predictions for trading, which are essentially still gambling. Meanwhile, institutions focus on cross-platform arbitrage and structural opportunities.

Saba Capital Management founder Boaz Weinstein explained this with a concrete example. He cited a situation where the probability of a recession was set at 50% on Polymarket, while in the credit markets, the risk of the same event was only 2%. Institutional managers exploit this price discrepancy by taking positions across multiple markets simultaneously. For example, buying a cheap “recession will not occur” contract on Polymarket while shorting overvalued bonds in the credit market. The structure ensures profit regardless of which scenario unfolds.

Furthermore, institutions have begun deploying higher-level strategies involving conditional probability trading. They analyze and trade based on the likelihood of B occurring given A, the probability of events within specific timeframes, and the combined probabilities of multiple events. This is a level above the simple yes/no predictions of individual investors.

Market Makers’ Privileges Decide the Outcome

What tilts the battlefield even further are the privileges granted by rules. Susquehanna has been designated as Kalshi’s first official market maker and has also secured contracts with Robinhood and sports betting platforms. Kalshi offers market makers benefits such as lower fees, expanded trading limits, and preferential trading channels.

The biggest issue with early prediction markets was lack of liquidity. Large trades often faced severe spreads or failed to find counterparties. But the entry of professional institutions quickly improves this situation. Price discrepancies across platforms and obviously irrational probability assessments are corrected in an instant.

Ultimately, the opportunities that individual investors once enjoyed—such as capturing price differences of 60% versus 55%—will disappear. The simple arbitrage of exploiting these differences will no longer exist.

The Future of Prediction Markets: An Era of Complexity

As Wall Street’s PhD-level traders begin to operate in earnest, the forms of prediction contracts are evolving. Multi-event combination contracts like sports parlays, time-series contracts that deal with event probabilities within specific timeframes, and conditional products based on conditional probabilities are expected to emerge one after another.

Historically, forex, futures, and cryptocurrency markets followed similar trajectories. Early retail profits gave way to institutional dominance of the entire market. Prediction markets are repeating this pattern. Technical expertise, capital scale, and regulatory privileges will determine the ultimate winners of this game.

While some opportunities may remain for individual investors in long-term predictions or niche areas, a cold reality must be faced. Once Wall Street’s sophisticated machinery is fully operational with complex strategies including conditional probabilities, the era of easy profits driven solely by information gaps will never return.