The $120 Billion Mirage: Penny Combos Inflated Prediction Market Volumes in Q3
Prediction markets recorded a record $179.6 billion in trading volume in the third quarter, but the headline figure masks a significant gap between reported volume and actual capital deployed.
The prediction market sector celebrated a record-breaking third quarter, with four tracked venues posting a combined nominal volume of $179.6 billion.
However, a closer look at the data from Prediction Frontier shows that the actual amount of money flowing into these markets was far lower.
Traders collectively paid just $56.1 billion for the contracts traded during this period, creating a massive $123 billion gap between reported activity and real capital deployment.
The $123 Billion Discrepancy
The primary driver of this inflation is the way venues count low-cost multi-leg contracts known as 'combos'.
These contracts combine several outcomes into a single position, paying out $1 only if every component settles at $1.
Under the reporting convention used by Prediction Frontier, each contract is counted at its $1 payout value, regardless of its execution price.
This means that buying 100 contracts for three cents each generates $100 in nominal volume but only $3 in purchase payments.
The report notes that this counting method allows cheaper combinations to generate substantial payout-based volume from comparatively small purchases.
Kalshi’s Role in Volume Growth
Kalshi was the biggest contributor to the inflated figures, accounting for $67.1 billion of the quarterly nominal volume.
This figure represents more than a third of the total volume across the four tracked venues.
The venue’s average purchase payment per $1 contract fell from 32 cents in July to 24 cents in September, indicating a shift toward cheaper trading instruments.
This changing mix of contract prices is crucial for understanding the market's growth.
Kalshi’s September nominal volume reached $60.7 billion, but dollars paid totalled $14.7 billion, just 10% above July, according to the report.
What the Numbers Mean for Traders
The gap between nominal volume and dollars paid widened from 2.7 times in the second quarter to 3.2 times in the third quarter.
While both measures rose during the period, the widening gap suggests that the market is seeing more activity on lower-priced contracts.
For brokers and analysts comparing venues, nominal volume alone can obscure a shift toward cheaper contracts.
Dollars paid provide a clearer picture of whether purchase spending is keeping pace with the reported growth in trading activity.
The report also highlights that neither volume measure represents fresh deposits, as contracts can trade repeatedly and traders can reuse funds.
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