How To Make Money Trading on Kalshi

I explore the wild west of market makers trading on prediction markets

Last week I published A Momentarily Comprehensive Guide to Prediction Markets.

While researching the essay, I spoke with operators at Kalshi and Polymarket, execs at FanDuel and DraftKings, and founders of new prediction markets startups.

And even more interestingly, I spoke with a bunch of people making money trading on prediction markets!

Some were 20-year-old college students working on a couple monitors in their dorm room. Some were middle-aged men with 20 years of trading experience, a Bloomberg terminal, and every data tool you could imagine in a fancy Chicago office.

Both are doing what’s called “market making.” A market maker is a quantitative trading firm that uses algorithms to determine what a fair price should be, posts continuous two-sided quotes around that price, and makes money by buying slightly lower and selling slightly higher.

As an example, consider Susquehanna, the first dedicated institutional market maker on Kalshi. If Susquehanna thinks the fair price for the Eagles to win this weekend is 58%, they might quote 57–59. Ideally, they buy at 57% and sell at 59%, pocketing the 2% spread. Market makers do that over and over with small spreads and large volumes to make money.

Market making is a big business. Citadel Securities, which primarily trades in the US equities and options markets, did $5.2 billion in EBITDA in 2024. You might’ve also heard of big firms like Jane Street and Virtu Financial.

As volume continues to grow on Kalshi and Polymarket, it’s a really exciting time to be market making on prediction markets for a few reasons…

First, let’s talk sports markets, which make up 90% of Kalshi volume. Today there’s huge alpha in procuring real-time data for sports markets and trading off of it.

Historically, the largest buyers of sports data have been sportsbooks like FanDuel. They pay brokers like Sportradar for data to help price their betting lines. But publicly available game data often comes with 30-40 second delays, and TV broadcast delays are even longer. In the past, sportsbooks haven’t needed perfectly real-time data because they only trade against retail bettors who don’t have faster data, and sharp bettors with real-time data have been kicked off sportsbooks.

But on exchanges, there’s huge alpha in getting faster data – and market makers are doing all types of scrappy things. I’ve met traders who are…

• Scraping the Twitter profiles of every team and beat reporter for injury updates

• Using DIY camera rigs to stream stadium jumbotrons to know the score faster

• Building bots to monitor lines on offshore books in case their lines move first

• And many more creative ideas

If you can know before others do that Saquon Barkley got injured or Luka Doncic hit a three, that’s alpha to trade on. Whether in a dorm room or on a trading floor, plenty of market makers are making money hand-over-fist by scrappily finding new data sources and using it to trade against retail traders in sports markets.

Next, let’s talk non-sports markets. Think markets around political elections, cultural events, and macroeconomic events. These make up ~10% of Kalshi volume, but they’re key to prediction markets’ long-term vision where people trade “markets on everything.” Sports results are pretty quantifiable, and sportsbooks and sharp bettors have been honing their trading skills for a long time now.

But how do you price the likelihood of who will win the next US presidential election; or who will be the #1 most-searched person on Google this year; or what words will MrBeast mention in his next video? The answers aren’t obvious, but data and algorithms could surely help estimate the right answer. Many of these markets don’t have major liquidity today. But if prediction markets become mainstream for retail traders, many non-sports markets will offer net-new challenges for market makers to price and profit from.

Lastly, I’ll mention one final reason it’s an exciting time to spin up a market maker operation… Fundamentally, there will always be a longer tail of less liquid markets for smaller market makers to profit from. Most of the world’s largest market makers (Citadel, Jane Street, etc) are likely to enter prediction markets only once 1) retail volumes grow, so they can deploy large sums of capital, and 2) we get some regulatory certainty around prediction markets, so they can be sure it’s a long-term business. Some market makers like Susquehanna are already entering prediction markets, but only trading on events where they can deploy the most capital, like NFL Sunday Night Football games.

And then there are the college kids in their dorm rooms, or part-time quants in their garage, specializing only in PGA Tour lines, or Congressional elections, or Taylor Swift-related events. As long as a single dollar made means more to an individual than it does to Citadel Securities, there will always be opportunity for a small market maker to profit off the long tail of markets.

The interesting trend I’m seeing is some of these small market makers are raising VC funds – with the vision of building the next great market making firm focused on prediction markets.

On one hand, it’s an uphill battle. As retail volumes grow, established trading firms like Susquehanna, Jump or even Citadel will have the access to capital, existing infrastructure, and talent to eat up more and more markets if there’s retail volume and therefore money to be made.

At the same time, it’s not impossible. DL Trading is a market maker focused on sports. Their founder David Frohardt-Lane was a trader at a Chicago-based high frequency trading firm and used algorithms to bet on baseball on the side. In 2020, he founded DL Trading to start trading sports on the UK exchanges BetFair and Smarkets. Then they started trading on regulated US exchanges like Sporttrade. And since Kalshi and Polymarket exploded, they’ve had a ball. It’s hard to know how large DL Trading has become, but they’re rumored to be one of the largest market makers on Kalshi alongside Susquehanna. Here’s a great interview with David from last year.

If David’s any inspiration, I think it’s possible for the right founding team to build a large market making firm and compete with the big guys. They’d need the ability to recruit top-tier trading talent, rally capital from investors, develop initial alpha in a specific subset of markets, develop new alpha as existing edges fade, and expand into larger markets over time. Maybe it’s a team of ex-Susquehanna or Jump traders looking to become their own bosses. Maybe it’s a college kid in their dorm room crazy enough to compete against the world’s largest market makers.

If that sounds anything like you and you’re building a market making firm around prediction markets, let me know - I’d love to meet you!