Prediction Markets: When betting meets finance

Will GTA 6 be released before November 2026? Who will win the grand final this year? What is Elon Musk's weekly post count on X? Enquiring minds want to know and so do prediction markets.

"The way you make money is by spotting places where the current estimate is wrong. It requires you to have more information than everybody else or to have somehow processed that information better than everybody else."
Adam Piovarchy, Research Fellow in Ethics and Moral Psychology, University of Notre Dame

Introduction

Here's a headline that might have seemed far-fetched just a few years ago: in April 2026, a serving US special forces soldier was charged with allegedly using classified military intelligence to place bets on a financial platform, making more than US$400,000 in the process.

Welcome to the world of prediction markets.

They sound really "financy" don't they? If they were called "betting markets," we might see the risk from the beginning. These platforms allow users to trade on the likely outcomes of real-world events. Really! Anything from Reserve Bank interest rate decisions to election results to pop culture moments. They are one of the fastest-growing corners of global finance right now.

So what exactly is a prediction market?

A prediction market is an online platform where users buy and sell contracts tied to the outcome of a future event. The event can be almost anything with a measurable result: a sporting fixture, a federal election, whether a particular Bill passes, whether an economic indicator rises or falls, or whether a celebrity releases a new album before a certain date.

Contracts are priced as probabilities. For example, if the market collectively believes an event has a 70% chance of occurring, the contract trades at roughly 70 cents. If the event happens, it settles at $1. If it doesn't, it's worthless. A simple example: you buy 1,000 contracts at 70 cents each. You pay $700. The event occurs, you receive $1,000, a $300 profit. The event doesn't occur, you lose your entire $700 stake.

The two dominant platforms internationally are Polymarket and Kalshi, both US-based. The scale of this industry is growing by leaps and bounds. According to a May 2026 analysis by the Pew Research Center, combined monthly trading on just these two platforms grew from under US$5 billion in September 2025 to around US$24 billion by April 2026, exceeding the roughly US$14 billion wagered monthly through all legal sports betting across the entire United States. That is a remarkable number for an industry that barely existed five years ago.

Will they become legal in Australia?

No. At least not in their current form and not right now.

Australia's communications regulator, the Australian Communications and Media Authority (ACMA), took formal action in August 2025, ordering all Australian internet service providers to block access to Polymarket. ACMA classified the platform as a prohibited interactive gambling service under the Interactive Gambling Act 2001, after an investigation triggered, interestingly, by Polymarket paying Australian social media influencers to promote election betting markets. Without an Australian state or territory licence, Polymarket had no legal basis to offer its services here.

The Australian Securities and Investments Commission (ASIC) has also taken a consistent position on structurally similar products. In May 2021, ASIC banned binary options (yes/no bets on financial outcomes) for retail clients, after finding that approximately 80% of retail clients lost money trading them. Net retail losses were around $490 million in 2018 alone. Prediction market contracts share important structural characteristics with those binary options. ASIC has also flagged regulatory gaps around emerging financial sector participants, including digital assets and fintechs, as a key priority for 2026, without naming prediction markets or these platforms specifically.

Who actually wins?

Prediction markets are often promoted as a way to "democratise finance," the idea being that anyone with specialist knowledge of a niche topic can turn that knowledge into profit. For some, that's a really appealing idea. But it's not true, most of the time.

A Wall Street Journal analysis of Polymarket's 1.6 million accounts found that just 0.1% of accounts captured approximately 67% of the platform's profits! Kalshi showed a similarly skewed distribution.

The winners are overwhelmingly sophisticated traders running automated systems and algorithmic bots, not individual participants with good instincts and a strong opinion about the RBA.

As one ethics researcher put it, turning a profit requires having more information than everybody else or having processed that information better than everybody else. For most participants, those conditions simply don't apply.

A particular concern for ADF members

One of the most serious issues emerging around prediction markets is insider trading, and this is where things become directly relevant for Defence personnel.

In April 2026, as mentioned, an active-duty US special forces soldier Gannon Ken Van Dyke was charged after allegedly using classified details about a covert operation targeting Venezuelan leader Nicolás Maduro to place bets on Polymarket before that information became public. US prosecutors allege he turned a stake of just over US$33,000 into more than US$400,000. This wasn't the only suspicious account active during that period. A separate trader made US$436,759 betting on Maduro's capture in the hours before a US military operation, then disappeared from the platform entirely.

A subsequent New York Times investigation identified more than 80 Polymarket users making bets with suspicious characteristics, including trades placed in the hours before US and Israeli strikes in Iran. The House Oversight Committee launched a formal congressional investigation into both platforms in May 2026.

The integrity implications for ADF members are real and not hypothetical. Using privileged professional knowledge, including anything related to your service, to place bets on a platform could affect your security clearance and have serious career consequences, in addition to the obvious national security and legal risks.

What's coming?

Prediction markets in their current form are banned in Australia, but they are unlikely to stay entirely outside the Australian system forever. Steven Pettigrove's view, as of early 2026, is that "ultimately, you'll see these products in Australia, but there'll be quite significant regulatory compliance around them." Whether self-regulation by the platforms will satisfy legislators in the meantime remains very much an open question.

What should you do right now?

Prediction markets are a real, rapidly growing global financial phenomenon, and they carry serious risks that most Australian participants aren't fully aware of, financial and, for ADF members, professional. Before engaging with any prediction market platform:

• Know the legal position. These platforms are currently classified as illegal gambling in Australia and carry no Australian consumer protections.
• Understand the odds. The profit distribution on these platforms strongly favours sophisticated automated traders. The anecdote about the 18-year-old in Sydney making a full-time income from prediction markets is the exception, not the rule.
• Think carefully about what you know professionally. Using privileged information, even indirectly, to inform bets on these platforms carries real risks for ADF members.
• If you see these promoted on social media, treat it with the same healthy scepticism you'd bring to any unsolicited investment opportunity. See our article on scams for what to watch for.