Pick any event that trades on more than one prediction market and line up the prices. They almost never match. On the morning we put this post together, the typical gap across the 14 events listed on two or more venues was about 5 points, and the widest were 7.
If markets are supposed to pool everything traders know, how can one question have three answers? There are three ordinary reasons. One of them hides in plain sight, in the rules nobody reads.
Reason one: it is not the same question
Two markets can share a headline and still ask different things. “Will Brent hit $90 by March 31?” sounds identical to “Will Brent settle above $90 before April 1?” It is not. The first resolves YES if the price touches $90 for a moment. The second needs a full trading day to close above it.
That sounds like hair splitting until you put numbers on it. Prices wander. A level that a price only has to touch is much easier to reach than one it has to close above, and a level it must still be above on the final day is harder again. Drag the controls below and watch the three rules pull apart.
For a price that moves randomly with no trend, there is a tidy result called the reflection principle: the chance of touching a level before a deadline is about twice the chance of finishing above it. Every path that ends above the line had to cross it, and for each path that crosses and ends above, there is a mirror image that crosses and ends below.
Real prices are not perfect random walks, so treat the factor of two as a rule of thumb. It is still big enough to matter. When one venue uses a touch rule and another a settle rule, a 7 point gap can be exactly right. Both venues can be priced well and still disagree.
Reason two: different people, different costs
Venues attract different traders, charge different fees and cap positions differently. A fee of a couple of cents a contract keeps prices from converging fully, because closing the gap costs more than it pays. Where only a handful of traders are active, a price can sit a few points from fair simply because nobody has bothered to correct it.
Put the reasons together and any one gap can be taken apart. Here are two from this week: one where the rules differ, one where they do not.
Half of this gap is the rules. A touch rule should trade above a settle rule, and here it does. The rest is the usual friction between venues.
Reason three: time
Gaps shrink as the deadline nears. Far from resolution there is room for honest disagreement and little reward for correcting it. In the final week, information is everywhere and mistakes get expensive fast.
This is why a wide gap months out is usually less interesting than a modest one the week before. Early gaps are mostly room to breathe. Late gaps are often information.
05What we do about it
Foreseez matches every listing of the same event across venues, reads the rules for each, and labels every gap: same rules, or rules differ. Consensus is weighted by liquidity, and we never put two prices side by side without saying whether they are answering the same question.
Prices and spreads in this post are sample data for illustration. Venue rules are described generally; always read each venue's own rules. Nothing here is investment advice.