Are you able to predict tomorrow’s weather more accurately than the local news? Maybe you have a keen interest in the rise and fall of gas prices. (Dads and people who are bad at making small talk at parties, your time has come!) Or maybe you’re really good at anticipating the numbers in the next jobs report.
If you keep up with the forces shaping Canada’s economy and climate, and the prospect of putting your money where your well-informed mouth is doesn’t scare you, you would probably enjoy prediction markets. That is, unless you make some of these common — but easily avoidable! — mistakes.
Mistake #1: Taking a position based on what you want to happen
If you’re emotionally invested in something — like whether your bum knee’s streak of predicting summer thunderstorms will stick — you may invest in the thing you hope will happen, which isn’t necessarily the thing that’s most likely to happen.
Remember, your goal is to make money, not to prove that you and the universe move in harmony.
Here’s a quick test: ask yourself how devastated you’d be if the outcome you’re trading against happens. If, say, your heart breaks at the prospect of a colder-than-average July or inflation coming in below 2.2%, your perspective is not exactly neutral — and those feelings might be pushing you into a bad trade. If that’s the case, do a little more research before taking your position. Or just pick another one entirely.
Mistake #2: Confusing an obvious trade with a good one
It’s hard to resist what seems like a sure thing, but it’s important to distinguish between the most obvious trades and the best trades.
Let’s say the market is pretty confident a major tech company will hit a trillion-dollar valuation by year-end. You buy the contract at $0.95, the company becomes the next trillicorn (that’s a word, right?), and you collect $1. Congrats! You made a sweet, sweet $0.05 profit. And for every $5 you make, you’re risking… $95. At that ratio, one bad call wipes out 19 good ones.
In prediction markets, you don’t only want to be right. You want to be right when a lot of other people are wrong. The best trades are the ones where you spot a meaningful gap between what the market believes and what you believe — and you have a strong reason to think you’re right.
Mistake #3: Getting stuck in a thin market
At first glance, it might seem like a market with a limited number of buyers and sellers and not a ton of trading going on is an ideal spot to make a tidy profit. But if the market is too thin, you can get stuck holding a position you no longer want — and take a substantial loss because of it. For example, say you come across an interesting contract on the upcoming revisions to the federal government’s carbon pricing policy. You have good reason to believe the changes will be announced by the deadline, so you buy in at $0.45. But then later that day you find another opportunity for your money.
You want out, but there are only a handful of people trading this event, and the best price someone will offer you for your contracts is $0.25. You're stuck taking a big loss — not because you took the wrong position, but because there weren’t enough traders to get you out of it.
How do you avoid this situation? Before you click buy, take a look at the bid-ask spread. A thin market with a wide spread — like buying at $0.45 but only being able to sell at $0.25 — means you’ve already lost before the event even happens. You’re looking for a healthy level of liquidity: lots of buyers and sellers and tight spreads. Like an older person test-driving a Honda CRV, you want to make sure it’s easy to get in and out.
Mistake #4: Forgetting to factor in timing
Don’t just look at potential returns. Look at how long it takes to make them, too. For example, locking up your money in a 90% probability event resolving in several years’ time — like whether the global average temperature will rise by 1.5°C by 2030 — might ultimately be worse than a 60% probability event resolving in two months. It’s all about opportunity cost. And don’t forget to be strategic about the timing of your buys, too. Prediction markets move fast on breaking news. If you hop on the bandwagon after the news is already priced in, you’re buying at the worst possible moment, often with minimal upside.
Mistake #5: Anchoring to outdated prices
They say that comparison is the thief of joy. That’s true in prediction markets, too. (In this analogy, joy = your money.)
Imagine that, yesterday, a “yes” contract on the Bank of Canada cutting interest rates was trading at $0.70, meaning the market believed there was a 70% chance of a cut. Today, the same contract is $0.45. Feels like a bargain, right? Maybe. But it’s more likely the price dropped based on some context that you may not have yet.
Prediction markets update in real time as new information emerges, and prices shift almost instantly — often faster than official outlets. So instead of comparing a prior price to the current one, consider the current moment, and make your decisions based on what you know right now.
Mistake #6: Ignoring fees
Prediction market platforms typically charge a percentage of winnings — sometimes 5–10% — which can sneakily erase the benefits of a trade that looks good on paper. Before you pull the trigger, do the math (even more math than you’re already doing, sorry). Subtract the platform fee from your expected profit to make sure you really do have that edge you’re hoping for. And remember: the higher the probability of a contract when you purchase it, the greater a percentage of your earnings those fees eat up.
Mistake #7: Not reading the fine print
Every contract on a prediction market comes with resolution criteria — the specific conditions that determine when and whether a contract pays out. Read them carefully, because the difference between what you think needs to happen and what the contract actually says can be significant.
Say there's a contract on whether Canada will enter a recession. You assume that the definition of a recession is the typical one: two consecutive quarters of negative GDP growth. But after two negative quarters, your contract still hasn’t resolved — and it won’t, not until the C.D. Howe Institute explicitly labels the period a recession, which doesn’t always happen based on the common definition. You were right in spirit, wrong on the contract. So… read the resolution criteria, even if it’s boring or you think you already know what it says.
Mistake #8: Forgetting the risk
Just like all other investments, prediction markets involve risk. Only put in money you’re willing to lose.
