Transcription
What up, guys? In this video, I'm going to teach you how to make free money trades legally. But first, I want to give you some contextual background on insider trading.
Most people don't realize what a gray area insider trading is. Even your casual real estate buyer or seller, you know, when they find out that Section 8 housing is coming into their town, they might try to sell it to someone who doesn't have that information. And I have some Chinese friends that had family in Wuhan and they definitely knew that the CCP wasn't being forthright about how severe COVID was and how contagious it was. So when COVID made it to the United States, they definitely shorted the market, made a ton of money doing that. And for sure Osama bin Laden's family and friends made a ton of money off of 9/11. So, in the days leading up to 9/11, the puts on American Airlines and United Airlines had about 10 times the trading volume as the calls, meaning that people were betting about 10 times as aggressively that these stocks were going to go down. And no other airlines had nearly the same put call ratio. It was just these two airlines, which were of course the two airlines involved in 9/11. Of course, the 9/11 commission concludes that there was no unusual activity and just a coincidence, but give me a break. Like Morgan Stanley and Croup, two companies that had over 22 floors in the World Trade Center, had over 45 times the usual trading activity in the days leading up to 9/11. So, you know that Bin Laden's family and friends made a ton of money off of 9/11.
Frankly, there's just no way to catch them. But as far as trying to be an insider trader, you have to have access to rare information and you're taking a huge risk because it's clearly spelled out by the SEC that it's illegal and you risk prison time. But did you know that there is a new financial market where the inside information isn't rare and you don't risk prison time? In fact, it's completely legal. It's these new betting markets like Poly Market and Calshi.
So, take this Super Bowl streaker for example. He bet $50,000 that there would be a Super Bowl streaker. And based on the odds of the bet, he was able to make over $300,000. And the only reason he got caught is because he kept running his mouth and bragging about it. But for sure some of his friends and family got away with their smaller bets because there's really no way to track that down. So he's like a Bin Laden and how he decided to sway the outcome of the market by himself. Of course, he's not going to serve any prison time like Martha Stewart because his actions are in a legal gray area while the SEC is figuring out how to regulate these new prediction markets.
Another recent example of insider betting on Poly Market is with Taylor Swift and whether she was going to get engaged. The Poly Market had a market on whether this was going to happen. Clearly, an inside trader came in who knew about the engagement way before the public did and he placed some huge bets moving the entire market. Even if it's obvious to everyone that this guy's insider trading, there's no way to catch him because in Poly Market, all you have to do is make a Polygon wallet and your identity is completely anonymous. And this is by design, but I'll get into that later. And the last example I can think of is this HBO documentary on Bitcoin and what the conclusion of the documentary is going to be. There was tons of betting activity on the conclusion of this documentary. What is stopping anyone who worked on this project at HBO from betting on it? So, you know that people who worked on this project and knew the conclusion of the documentary definitely bet on it because there was a lot of strange activity in this betting market. Of course, the way the market ended up predicting was what ended up happening. And again, there's no way to track down inside betters.
So what exactly is happening here? These prediction markets, not only is it easier for an everyday person to get inside information, but the businesses that run these prediction markets want you to insider trade. Let me explain. It all starts with understanding what the business model of these prediction market companies are. Most people would assume that their plan is to just make money off of fees. And for now, Poly Market doesn't charge any fee because they're just trying to grow their user base because volume and trading is so important to build liquidity and trust in the marketplace. But the fee structure isn't actually the true business model. These prediction markets, their true value comes in accurately being able to forecast the future. Their true business goals are actually to be able to compete with Bloomberg Terminal and other data providers. Having actual predictive correct data is incredibly profitable in the world we live in. For example, Poly Market and these prediction markets were better at forecasting that Donald Trump was going to win the presidency in 2024, and that's going to directly impact the stock market. So having tick-for-tick live data on what's happening in the most accurately priced prediction market can be used as a feed into an automated trading algorithm.
So, what these prediction markets actually intend to do, and this is just coming from my experience as someone who worked in the industry, they're planning to charge people for their data through some kind of subscription model like how Bloomberg is a couple thousand dollars a month, and they're planning to add some kind of a live API feed so you can get the live betting market data before everyone else. And what Bloomberg does typically is that you'll get a 15-second delay unless you pay an arm and a leg for the live high-speed data. So, I'm guessing they're going to do that as well. They're going to charge their institutional clients an arm and a leg to get access to the live data because what can you do with that live data? You can arbitrage between the prediction market and an actual traditional financial market. Even Poly Market, they rolled out prediction markets on earnings, for example. So, you know, you have quarterly earnings for companies like Google. And if you have a prediction market on whether the earnings are going to overshoot or undershoot and some insider trader comes in is just betting that it's going to overshoot by a ton, you can guess that the actual stock price is probably going to outperform as well. So there's an arbitrage opportunity that exists there. And the faster you can get that data, the faster you can profit off that arb. And there's potential for them to have government clients as well. You know, prediction markets on whether China is going to invade Taiwan. Things like this can be really useful for the government in terms of mobilizing their navy in advance. And they can charge a ton of money to the government as well, kind of like how Palantir does.
So, you can quickly see why they have an incentive to allow insider trading. And if you look through their fine print, you'll notice that there's no place where they explicitly say they don't want insider trading or they use any kind of language like that. It's because, frankly, they need insider trading to make their prediction markets more accurate. What they're trying to do is maintain the delicate balance between having insider traders while also not allowing people to have that perception of them so that market makers come in and still provide liquidity to the markets. So for people who aren't familiar with financial markets in general, there's always multiple players in the market. There's market makers who attempt to put out both bid and asks so that they can scalp intraday multiple times a day. They provide liquidity by letting other people come into the market and trade with them. And of course, there's other market participants as well, like there's hedgers who made a bigger trade in another market and they're just placing a bet in that market just as a hedge. But I don't want to get lost in all the details. The point is that there's generally market makers and then there's speculators. And some of these speculators have inside information. So, they're willing to bet huge and they're just running over the market maker. And so there's this delicate balance that these prediction market companies have to make where they have to act like they want integrity in the market because they want market makers to come in and provide liquidity, but at the same time, they tacitly want people with inside information to come into the market and trade on that inside information so that they push the market in the direction that makes their markets more predictive. That way they can reach their end goal of having this high-quality, valuable, predictive market data that they can then charge to institutional clients for large sums of money.
So finally, how does this apply to you and how do you make money off of it? So the most obvious answer is because you know that these prediction markets want people to insider trade and it's a legal gray area and you won't go to prison for it. At worst, you're going to just get a fine if you get caught. It's a free money opportunity at present. So, of course, there's the example of the Super Bowl streaker and how he manipulated the market himself by running onto the field. That's kind of extreme, right? For you yourself to impact the market. More casual examples like the Taylor Swift engagement example and the HBO special. If you are in those situations, then yes, obviously look to see if there's a prediction market out there and you can profit off of your insider knowledge. The thing is almost anyone can do this because you can just create your own prediction market at any time on these sites like Poly Market. So let's say you work at Tesla, you find out that the new Model X is going to have a complete body redesign. So you can just put a market out there for that. Is Tesla going to have a new body design on the Model X in 2026? And then when there's volume that comes in, when market makers come in to create the market, you can just trade against them, make a ton of money. So almost everyone has some kind of inside information wherever you work. There's usually some kind of valuable knowledge, insider knowledge that you have. So you just put that information out there on a prediction market and see if you can profit off of your knowledge. But if you just don't work in an area where you get access to private information like that, you could always just find a friend who you know does. You can make the trade for them and then agree to some split. Okay, I'll give you 50% of the profit. Something like that.
And lastly, if you just don't know anyone that might work somewhere where they have some kind of inside information, you can basically track down insider traders. There are already tools that people have built to attempt to do this. Insider traders in these big illiquid markets have obvious betting patterns. A lot of times they'll be completely new accounts. They'll come into a market just confidently start making huge bets and pushing the whole market in that direction. And over 50% of the time when you see activity like this, it's going to be a winning trade. It's not going to be exactly 50/50 like you would think if it was just a degenerate gambler doing that. So you can write code or vibe code up some kind of insider betting whale tracker that tells you when this kind of activity is happening in any particular betting market and you can just piggyback on that whale. I expect this kind of a trading strategy to last for at least a couple of years.
So hopefully you learned something about these new financial markets. Prediction markets are going to be a big part of the future financial market. There's going to be tight integration between prediction markets and traditional financial markets. And in the early stages, that's where all the opportunity is because it's still gray area and unregulated. And that's true with all businesses. For example, when futures first came out, there were a lot of traders. I know traders who were spoofing and the regulators didn't come out and regulate it for years and years. And once they regulated it, the original spoofers already made all their money. I mean, these are guys who are founders and CEOs of trading firms that you've probably heard of now. That's the game. I mean, Travis Kalanick of Uber understood that when he just went into cities and started setting up shop before regulators could figure out what he was doing. Don't ask for permission. Ask for forgiveness. That's how a lot of these guys make their fortune. They're smart enough to see the trend of how things are evolving to get ahead of opportunities while they're still gray and unregulated. And that's where we are right now with these prediction markets. So, I wouldn't miss the boat on it. All right, let me know if you have any questions. Take it easy.