5 Costly Prediction Market Mistakes (We Learned #1 the Hard Way)

Most prediction market traders lose money in their first few months. That is not because prediction markets are rigged or because the odds are stacked against you — it is because new traders make the same handful of preventable mistakes over and over again. These mistakes feel invisible in the moment. You place what looks like a smart trade, the math seems right, and you still end up with less money than you started with. After trading thousands of contracts across weather, economic, and financial markets, I can tell you exactly where the money disappears. Here are the five most common prediction market mistakes and how to avoid every one of them.

1. Ignoring the Impact of Fees

This is the number one account killer for new traders, and it is the least obvious. On a platform like Kalshi, you pay fees on every trade — both when you buy and when you sell. The fee structure typically runs around 7 cents per contract for a round-trip (buy and sell combined), with additional fees on settlement payouts. That might sound small, but it adds up fast and can turn apparently profitable trades into break-even or losing ones.

Here is a concrete example. Say you spot a weather contract you like and buy Yes at $0.60. The temperature comes in your direction, the contract moves up, and you sell at $0.65. On paper, you just made 5 cents per contract — an 8.3% return on your capital. Sounds great.

Now add fees. Kalshi charges roughly 2 cents on the buy side and 2 cents on the sell side for a contract in this price range. Some structures charge slightly more. After accounting for approximately 4 cents in round-trip fees, your 5-cent gross profit becomes a 1-cent net profit. Your 8.3% return just became 1.7%. Scale that across a hundred trades and you will wonder where all the money went.

The fix is straightforward but requires discipline: calculate your net profit after fees before you place any trade. If a trade does not clear fees by a comfortable margin, skip it. Our guide on event contract pricing and probability walks through the exact math for calculating edge after fees. As a rule of thumb, I look for at least a 7-to-10-cent expected edge before entering a position. Anything thinner and the fees eat too much of the upside. Beginners who trade on 3-cent or 4-cent edges thinking they will make it up in volume are slowly bleeding their accounts dry.

2. Overconcentrating on One Market Category

New traders tend to find one type of market they understand — usually weather or S&P 500 ranges — and put all their capital into that single category. The logic makes sense on the surface: stick with what you know. But in practice, overconcentration creates a fragile portfolio that can take devastating hits when conditions shift.

Weather markets are a good example. If you are exclusively trading temperature contracts in three or four cities, a single weather pattern can correlate your entire book. A broad warm front across the eastern United States could mean all of your Yes positions on temperature exceeding their strikes either win together or lose together. You have not diversified — you have made one big bet disguised as five small ones.

The same problem shows up in financial markets. If all your capital is in S&P 500 range contracts and a surprise Fed announcement sends the index flying past your strikes, every position in your portfolio moves against you simultaneously.

Spread your capital across uncorrelated market categories. Our best prediction market platforms guide covers which platforms offer the widest market variety. A portfolio that includes weather contracts, economic event markets (like CPI or jobs reports), and financial range markets is far more resilient. When weather markets have a bad week, your economic positions are unaffected. When an unexpected rate decision blows up your Fed contracts, your temperature trades keep humming along. Diversification is not just a textbook concept — it is the difference between a rough week and a blown account.

3. Trading Illiquid Markets

Not every contract listed on a prediction market is worth trading. Many markets, especially those tied to niche events or long-dated outcomes, have thin order books with wide bid-ask spreads. These illiquid markets are traps for new traders who focus on the contract price without looking at how easy it will be to get in and out.

Here is what happens in practice. You find a contract that looks mispriced at $0.40. You place a buy order and get filled. A few hours later, the market moves in your favor and you want to take profit. You open the order book and see the best bid is $0.38 — below where you bought. There are no buyers at $0.40 or above. The contract might be “worth” more based on your model, but if nobody is willing to buy it from you at that price, the value is theoretical.

Wide spreads create a hidden tax on every trade. If the bid-ask spread on a contract is 8 to 10 cents wide, you are losing 4 to 5 cents of value the moment you enter the position, on top of whatever fees you pay. That means a contract needs to move significantly in your favor just for you to break even.

Before entering any trade, check the order book. Look at the bid-ask spread, the depth at each price level, and the recent trade history. A healthy market will have a spread of 1 to 3 cents with reasonable size on both sides. If the spread is 5 cents or wider, or if the order book has fewer than 10 to 20 contracts at the best bid, think twice. Stick to the most actively traded markets on the platform — daily weather contracts in major cities, near-term S&P 500 ranges, and upcoming Fed decision markets tend to have the best liquidity. Leave the obscure, long-dated contracts to the market makers.

4. Not Understanding Settlement Mechanics

Every prediction market contract has specific settlement rules: what data source determines the outcome, when exactly the contract resolves, and how edge cases are handled. Traders who do not read these details carefully end up surprised — and often on the losing side of a trade they thought they had won.

Settlement timing is the most common blindspot. Weather contracts on Kalshi, for example, do not settle at midnight on the observation day. They settle the next morning, after official NOAA weather station data has been published and verified. This means your capital is tied up longer than you might expect, and it also means the official recorded high might differ from the real-time temperature readings you were checking on your weather app.

Financial range markets have their own quirks. An S&P 500 daily range contract settles based on the official closing price, not the last price you saw on a real-time chart. The official close can differ from the 4:00 PM ET print by a fraction due to closing auction mechanics. If your contract strike is right at the boundary, that fraction matters.

Economic event markets can be even more treacherous. A contract on whether monthly CPI will be above or below a certain number settles on the initial release from the Bureau of Labor Statistics, not on subsequent revisions. If the initial release comes in at 3.0% and the contract strike is 3.0%, you need to know exactly how the contract defines “above” versus “at or above.”

Read the settlement rules for every contract you trade. They are listed on the contract detail page on every reputable platform. Pay particular attention to the resolution source, the exact settlement time, and how boundary conditions are handled. A few minutes of reading can prevent a loss that feels unfair but is entirely your fault. For practical examples of settlement quirks, see our guide on trading weather markets on Kalshi.

5. Emotional Trading and Revenge Trading After Losses

This is the mistake that separates traders who survive their first year from those who do not. Every trader experiences losses. A weather forecast busts, a surprise economic report wipes out your position, or you get caught on the wrong side of a low-probability event. That is the nature of trading probabilistic markets. The danger is not the loss itself — it is what you do next.

Revenge trading is the instinct to immediately enter a new position to “make back” what you just lost. It usually means taking a trade with a thinner edge than you would normally accept, sizing the position larger than your risk rules allow, or trading a market you do not understand well. The thought process is: “I just lost $25, so I need to find a quick $25 trade to get back to even.” That urgency overrides your normal analysis, and the result is almost always a second loss that compounds the first.

A related pattern is emotional trading driven by conviction rather than data. You believe the temperature is going to exceed the strike because you “feel” like it is been trending warm. You double down on an S&P 500 position because you are “sure” the market will bounce. You hold a losing position past your exit criteria because you do not want to accept the loss. Every one of these behaviors turns small losses into large ones.

The antidote is simple to describe and hard to execute: have a plan and follow it mechanically. Define your entry criteria, your position sizing rules, and your exit conditions before you place any trade. When a trade goes against you, execute your exit and move on. Do not adjust your rules in the heat of the moment. If you find yourself wanting to increase your position size after a loss, close your laptop and take a break.

One practical technique that works: set a daily loss limit. If you lose more than a fixed dollar amount in a single day — say $50 or $100, depending on your account size — stop trading for the rest of the day. This single rule prevents the worst damage from revenge trading spirals and gives you time to reassess with a clear head.

Key Takeaways

• Always calculate net profit after fees before entering a trade. On Kalshi, round-trip fees can consume most or all of a 5-cent gain. Look for edges of at least 7 to 10 cents to trade profitably after costs.
• Diversify across market categories — weather, economics, financials — so a single correlated event does not wipe out your entire book.
• Check the order book before you trade. If the bid-ask spread is wider than 3 to 5 cents or the book is thin, the market is too illiquid to trade efficiently.
• Read the settlement rules for every contract. Know the data source, the exact settlement time, and how boundary conditions are handled. Assumptions cost money.
• Follow a mechanical process and set a daily loss limit. Revenge trading after losses is the fastest way to destroy a prediction market account. The best trade after a bad loss is often no trade at all.