Prediction-Market Arbitrage: Why YES + NO Below $1 Is Only the First Check
Learn why a sub-$1 YES-plus-NO price is only a gross arbitrage signal—and how contract matching, executable quotes, fees, liquidity, outcome mapping, and two-leg fill risk determine the real trade.
The simplest prediction-market arbitrage equation is appealing: buy a YES share and a complementary NO share for less than $1, then receive $1 when one side wins. The arithmetic is necessary but not sufficient. The contracts must resolve as true complements, both displayed prices must be executable for the required size, costs must fit inside the gap, and both legs must fill. Until those checks pass, you have a price comparison—not a locked profit.
The basic arbitrage equation
For one complementary share bundle:
gross edge = $1 settlement value − YES acquisition cost − NO acquisition cost
If executable YES costs 46 cents and executable NO costs 51 cents, the apparent gross cost is 97 cents and the apparent gross edge is 3 cents per complete share pair.
That calculation assumes:
- both contracts settle to exactly one combined dollar;
- one and only one selected outcome wins;
- the quoted prices are available for equal size;
- both legs execute;
- the capital can remain locked until exit or resolution;
- there are no fees, slippage, gas, bridge, or conversion costs.
The rest of the analysis tests those assumptions.
1. Prove that the contracts are equivalent
Contract matching is the most important check because a perfect fill cannot repair a resolution mismatch.
Compare:
| Contract field | Question to answer |
|---|---|
| Event condition | Are both markets asking about the same real-world event? |
| Outcome | Does one selected share pay when the other selected share does not? |
| Deadline | Do both count the event through the same date and timezone? |
| Resolution source | Will the same evidence decide both contracts? |
| Exceptional cases | How do cancellation, postponement, replacement, or ambiguity resolve? |
| Payout | Is the winning settlement value compatible after currency and fee treatment? |
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“Candidate wins the election” and “candidate becomes president” are not automatically the same contract. Neither are markets with different date cutoffs or sources.
2. Map the native outcomes correctly
Cross-venue outcome labels can be reversed or expressed differently. To cover the economic YES exposure in one normalized pair, Hunch may need a venue’s native NO outcome if the underlying question is phrased in the opposite direction.
Write the mapping in plain language:
- desired exposure: “event happens”;
- venue A native share: YES on “event happens”;
- venue B native share: NO on “event does not happen.”
Then test every resolution branch. If both shares can lose, or both can fail to produce the expected combined payout, the pair is not a complete hedge.
3. Replace displayed prices with executable quotes
Prediction-market interfaces can display:
- last trade;
- midpoint;
- implied probability;
- best bid;
- best ask;
- average execution estimate for a selected amount.
A buyer needs the ask side or a fresh executable quote. If the best ask offers only ten shares, it cannot support a hundred-share bundle at that price.
For each leg, record:
- best executable price;
- available shares at that price;
- average price for the intended size;
- quote timestamp;
- order type and price protection.
4. Size both legs equally
An arbitrage bundle pays predictably only for the matched share count. Buying 100 YES shares and 60 complementary NO shares leaves 40 YES shares directional.
The executable bundle size is constrained by the smaller leg after considering depth, balance, minimum order, and locked funds.
matched size = min(executable YES shares, executable NO shares)
Calculate the remaining unmatched exposure separately. Do not average it into the “locked” return.
5. Subtract all costs
Net edge can include:
- taker or trading fees on either venue;
- bid–ask spread already embedded in acquisition;
- price impact through order-book levels or an AMM;
- network transaction costs;
- bridge or conversion cost;
- withdrawal cost;
- capital lock-up until resolution;
- unwind cost if one leg fails.
net edge = settlement value − executable leg costs − explicit fees − funding and unwind costs
Use current venue fee pages and live ticket estimates. A fee schedule copied from an old article can turn a correct formula into a wrong trade.
6. Check quote freshness
Cross-venue data does not update at exactly the same moment. One card can combine a fresh order book with a stale cached price and create a false gap.
The opportunity should be reverified immediately before opening either leg:
- both markets active and accepting orders;
- both quotes within the allowed freshness window;
- enough available size remains;
- no rule, status, or venue maintenance change;
- net edge remains positive after refresh.
If refreshing removes the gap, the screen found a historical comparison, not executable arbitrage.
7. Account for two-leg fill risk
Most cross-venue prediction-market arbitrage is non-atomic. The first leg can fill while the second:
- moves above the maximum price;
- partially fills;
- fails for insufficient balance or approval;
- closes or pauses;
- rejects an expired quote.
The result is a directional position. An emergency unwind can cost more than the original gross edge.
Before starting, define:
- which leg is less liquid;
- maximum acceptable price for each leg;
- what to do after a partial fill;
- maximum directional exposure;
- cancellation and unwind path.
Hunch currently opens venue-specific trade reviews; do not describe the product as an atomic two-leg executor.
Verified live opportunity versus comparison
Hunch Arbitrage separates two states:
| State | What it establishes | What remains for the trader |
|---|---|---|
| Verified live opportunity | Current matching, quote, mapping, liquidity, and positive net-edge checks passed within the product methodology | Review both contracts and submit/manage non-atomic legs |
| Comparison | Matched or related markets can be compared across venues | Verify equivalence, quotes, costs, and edge before calling it arbitrage |
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During the production review for this draft, the page explicitly stated that verified live spreads are separated from ordinary market comparisons. That wording should remain visible in the screenshot so readers do not treat every card as a trade.
A hypothetical worked check
Assume a matched pair shows:
| Input | YES leg | NO leg |
|---|---|---|
| Headline price | 45 cents | 50 cents |
| Executable average for 100 shares | 46 cents | 51 cents |
| Acquisition cost | $46 | $51 |
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Gross settlement value is $100 and gross acquisition cost is $97, leaving $3 before costs.
Now suppose combined fees, slippage beyond the estimate, and funding costs total $2.40. The remaining modeled edge is $0.60. If the second leg moves by one cent before filling, the edge becomes negative.
This is a teaching example, not a current opportunity. A real case needs timestamped books, rules, fee inputs, and order results.
When a price gap is information instead of arbitrage
Prices can differ because:
- one venue updated faster after news;
- contract wording differs;
- traders interpret the resolution source differently;
- liquidity is thin;
- access and funding constraints segment participants;
- one displayed price is stale;
- available size is too small to close the gap.
The difference can still be useful research. It simply belongs to cross-venue comparison until the arbitrage conditions are proven.