Market Efficiency & Mispricing Scanner

Overview

This pillar analyzes the structural health of a prediction market, identifying mispricings and arbitrage opportunities. It helps determine if a market's price accurately reflects all available information or if it's lagging, offering a unique trading edge.

What It Does

The scanner continuously monitors market order books to detect structural flaws. It calculates the sum of implied probabilities across all outcomes in a market to find arbitrage windows. Additionally, it measures the bid-ask spread to gauge liquidity and analyzes how quickly prices react to new information.

Why It Matters

A market's price can be wrong even if many people are trading on it. This pillar provides a structural advantage by flagging moments of inefficiency, allowing you to profit from the market correcting itself, independent of the actual event outcome.

How It Works

First, the system ingests real-time order book data for a market and all its related contracts. It then calculates the implied probabilities and sums them, flagging any market where the total exceeds 100%. Finally, it computes spread tightness and price velocity metrics to create an overall market efficiency score.

Methodology

Arbitrage is detected when Sum(1 / Price_outcome_i) < 1.0, indicating a profitable position. Spread Tightness is calculated as (Ask Price - Bid Price) / ((Ask Price + Bid Price) / 2). Price Discovery Speed is measured by the half-life of price decay following a major information event, tracking the time to reach a new stable price equilibrium.

Edge & Advantage

This pillar offers an edge based on pure market mechanics, not subjective event prediction. It finds profits in the structure of the market itself.

Key Indicators

• Arbitrage Opportunity

  high

  A state where the sum of implied probabilities of all outcomes creates a risk-free profit opportunity. Flagged when total is over 100%.

• Spread Tightness

  medium

  The percentage gap between the best buy and sell prices. A wide spread signals low liquidity or high uncertainty.

• Price Discovery Speed

  low

  Measures how quickly a market's price incorporates new public information. Slow speeds indicate inefficiency.

Data Sources

• Prediction Market APIs

  Provides real-time order book data, trade history, and contract prices from platforms like Kalshi, Polymarket, and Manifold.

• Consolidated Market Feeds

  Services that aggregate and standardize order book data across multiple prediction market venues.

Example Questions This Pillar Answers

• → Is there a profitable arbitrage opportunity between the 'Yes' and 'No' contracts for this event?
• → Does the wide bid-ask spread on this market signal high risk or a trading opportunity?
• → Is this market slow to react to news, suggesting its current price is stale?

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