Definition ∞ A trading strategy profiting from discrepancies between the implied probabilities of events in a prediction market and the actual probabilities or prices in other markets. This involves buying outcome tokens at a lower price and selling them at a higher price, or vice versa, to equalize valuations. Successful execution requires rapid identification of mispricings and efficient transaction capabilities. This activity contributes to more accurate probability discovery.
Context ∞ Prediction market arbitrage is a key aspect of decentralized prediction platforms, frequently discussed in crypto news. Reports might detail how traders exploit differences between prediction market odds and real-world data or other betting markets. This type of arbitrage helps to align the collective wisdom expressed in prediction markets with external information, thereby improving their accuracy.
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