How much does the public really know about market makers? You know, the people and firms on the other side of your trades on Kalshi, Polymarket, and the growing list of prediction market exchanges?
Here’s a brutally honest answer.
“I don’t think the public has a clue what market makers do,” said the man who prefers to be known in gambling circles as “SigmaSquirrel” (@SquirrelSigma on X). He’s a partner in a market-making operation called SharpX Analytics that quotes parlay and combo prices on Kalshi and ProphetX. And he repeated his words for emphasis. “I don’t think they have a clue.”
He’s probably right. The term “market maker” gets thrown around constantly, be it on social media, in earnings calls, in regulatory filings, or in breathless press releases about institutional partnerships, but almost nobody outside the industry can tell you what it actually means in practice. Which is probably a problem, because market makers are the reason prediction markets function at all. They’re the reason there’s a price on the screen when you pull up Kalshi. They’re the reason the spread is a penny wide on an NBA moneyline and 10 cents wide on a WTA round-of-128 tennis match. They’re the reason you can click “buy” and actually get your order filled.
A bookie by any other name
Let’s start here: Market making isn’t new. It isn’t exotic. If you’ve ever placed a bet with a sportsbook, you’ve already traded against a market maker. You just didn’t call it that.
“A bookmaker is a market maker,” said Alfonso Straffon, a former Wall Street bond trader and sports trader, someone who understands firsthand the intersection of sports betting and financial markets and who is currently advising Matchbook on its upcoming U.S. launch. “It’s as clear cut as that, and there’s no way around it.”
When Circa hangs a line, that’s a market. When Pinnacle posts odds, that’s a market. When DraftKings puts up a player prop, that’s a market. Someone is posting a price and daring you to take it. That’s market making, and it’s been going on since before any of us were born.
The difference, and it’s a meaningful one, is that DraftKings and FanDuel are what the finance people call single-dealer platforms. They make the market. You take it or leave it. There’s no competition, no second opinion. Just the house and you.
“When you go to cash out on a regular sportsbook, there is precisely one person in your backyard,” said Alex Kane, founder and CEO of Sporttrade. “That’s the cash-out offer.”
On an exchange, it works differently. Multiple market makers compete to offer you the best price. They post bids and offers. They jostle with each other. The result, at least in theory, is tighter spreads and better prices for the person clicking the button.
“It’s basic economics,” SigmaSquirrel said. “The more people you have quoting, the tighter the spreads. The tighter the spreads, the better for the customer.”
Pulling back the curtain
Chris Dierkes, who heads trading at NoVig and does some market making himself on Kalshi, put it this way: It’s about price discovery.
“I think the biggest misconception with market making is people think it means you want balanced action,” Dierkes said. “That’s not true. Really what market making is about is price discovery. How quickly can you get the true price of an underlying market as cheaply as possible.”
He uses the coin toss as an illustration. If you know it’s genuinely, mathematically 50-50, you can post a tight market and collect your edge all day. You don’t care which side people bet on. The price is right. You just clip the spread.
But nobody’s flipping coins and betting on it (other than on Super Bowl Sunday). The real question is: What are the odds the Yankees beat the Giants on opening day? And smart people disagree. So a market maker has to figure out the fair price, post it, and then adjust as new information comes in, whether that information arrives as a sharp bettor is loading up on one side or a data feed is telling them the pitcher just toed the rubber.
“Eventually they will settle on a number that they believe is a fair price,” Dierkes said. “And once they do that, their limits will start to increase. It’s like when you go to a casino. Take the roulette wheel; the casino doesn’t care if you bet the same number every time. They’d prefer for you to bet all 38 numbers, because then they’d just collect their spread. But they don’t care, because the odds are fixed. With market making, you’re trying to get that fair number.”
Not so simple in practice
That’s the clean version. Here’s what it looks like in practice.
SigmaSquirrel’s operation is responding to many thousands of RFQ requests per minute. RFQ stands for “request for quote,” and it’s what happens every time you build a combo (another name for a parlay) on Kalshi or ProphetX.
Say you want to combo a moneyline, a total, and Jalen Brunson over 24.5 points. As you build that slip, every time you add or subtract a leg, the platform’s technology pings every market maker connected to its RFQ system and says: Give me your price. You have two or three seconds. The best price wins.
The customer sees one number on the screen. Behind it, an algorithmic knife fight just happened.
“The majority of quotes never get placed,” SigmaSquirrel said. “They’re just pricing requests. So you have to be able to handle them all.”
Kane, who has seen both sides of this from building Sporttrade, put it in starker terms. From some of Sporttrade’s market participants, he said, there are times when the exchange receives over 5,000 orders in a single second.
“It takes about a tenth of a second to blink your eye,” Kane said. “So in that period of time, they’ve submitted and canceled over 500 orders.”
And it’s not just parlays. On the singles side, the order book is a living thing. Kane said you can watch a live college basketball game without ever turning on a screen, just by watching how the market moves.
“You can literally watch the order book and go, oh, I guess the team just called a timeout. Oh, ball’s back in play. Oh, looks like there was a foul,” Kane said. “You can actually just watch the tenor of the order book. During a TV timeout, the spreads tighten and size builds up at the best prices. The second the ball is back in play, the book thins out and the spreads blow wide. A traditional sportsbook sits at -110/-110 through all of it. This thing breathes.”
Peer to peer?
Every prediction market exchange makes a big deal about peer-to-peer trading. You’re not betting against the house. You’re trading with other people. That’s the spiel. And it’s true. You are not betting against Kalshi and the rest. They collect fees. They don’t take positions. (Well, except for Kalshi Trading, which is a separate entity from Kalshi itself, and does participate as a market maker. And DraftKings will be following a similar path.)
But the “other people” part deserves some fine print.
“They’re right when they say it’s peer to peer,” SigmaSquirrel said. “Sometimes your peer is a shop like ours. Sometimes your peer is some guy in their basement. You never know.”
A shop like his has a team member who spent 25 years building market-making platforms for exchanges and prop trading firms in Chicago — “everything from corn to crypto,” as SigmaSquirrel put it — plus an ultra-sharp NBA modeler and proprietary pricing algorithms running on low-latency trading systems.
There’s a simple way to tell who you’re up against, by the way. Look at the spread. SigmaSquirrel said if a market has a 1-to-2-cent spread, institutions are almost certainly there. If it’s 6 cents wide, that’s a bunch of stay-at-home traders. Those wide markets, generally novelty and thinly traded, don’t generate enough volume for an institutional player to bother.
“Those markets make zero sense if you’re doing it as an entity,” he said. “You have to generate enough volume to pay the bills for your infrastructure costs and make money and have it be worth your time.”
Straffon, for his part, said the “we’re not the house” line drives him up the wall. Not because it’s false, but because it’s incomplete by not mentioning the risk-taking role of market makers, especially those designated as such.
“The market makers that are providing liquidity, they’re the ones acting as the house in many instances, taking on balance sheet risk,” Straffon said.
He sees liquidity providers in tiers: At the top, you have institutional and corporate market makers, like Susquehanna International Group, which Kalshi announced as its first designated market maker in April 2024, or like DraftKings, which recently disclosed they will be making markets. Below that are sharp individuals and small teams who are just as qualified, if not more, than those in the top tier, and are happy to provide liquidity. And then there’s a third tier of folks placing limit orders who think they know what they are doing.
“Every Tom, Dick, and Jerry putting up limit orders and just getting their asses handed to them,” Straffon described.
Andrew Courtney, a former institutional trader who writes about prediction markets, framed it similarly but pointed to an important nuance. In niche, lower-volume markets such as weather, culture, obscure political questions, and the like, individual traders with real expertise can carve out a profitable space. Adhi Rajaprabhakaran of the substack Fifty Cent Dollars has called them “garage band market makers,” and the description fits.
“There’s a lot for a guy with a laptop,” Courtney said. “It’s a very small amount for an institutional trading firm. Nobody’s going to keep the lights on with that. So those markets are kind of where individuals with expertise can have a niche.”
Who wins?
If you’re a bettor (er, sorry, a trader) the answer to the question of “who wins?” is probably you, at least relative to the alternative.
“Players are getting a much better deal through exchanges than they are through online sportsbooks,” SigmaSquirrel said. “A much better deal, because we’re competing on price.”
Kane walked us through the math. A traditional sportsbook might sell a combo at 8% when it’s really worth 6%. On an exchange, the first market maker offers 8. Then another offers 7.7. Then 7.1. Then 6.4. Then 5.9. The customer gets 5.9.
“That’s where you’re gonna see the hold rate and the margin completely evaporate,” Kane said.
The flip side? Straffon pumps the brakes here. As he notes, most customers don’t actually care about getting the best price.
“When it comes to sports, most people just want to get a bet down,” he said. “It doesn’t matter if it’s the Jets at -110 or at -102.”
“They just want their promos, their bonuses, their deposit match, their parlay insurance,” Kane acknowledged. “And that’s why the state-regulated thing is not going [away].”
Straffon pointed to the U.K., where betting exchanges like Matchbook and Betfair have existed for years alongside traditional bookmakers. The exchange market share? He guesses 10% across the pond and thinks the U.S. will naturally see a higher penetration rate because Americans have more of an inherent trading culture thanks to Robinhood and its ilk. But that is not to say sportsbooks will disappear anytime soon.
Learning curve
If there’s one thing everyone consulted for this article agrees on, it’s that all of this — the market making, the exchange infrastructure, the RFQ technology, the competitive dynamics — is still in its earliest stages.
SigmaSquirrel described having to shut his system down for five minutes the other day to manually look at the data and figure out why they were getting hammered with repeat bets on a specific parlay.
“Oh s**t,” was the diagnosis, he said. “Those moments happen all the time, because it’s new. A year from now, we’ll have plugged those leaks.”
Dierkes made the point that market makers are essential infrastructure. Without them, there’s nothing on the screen. No volume. No liquidity. No market.
“If there’s no market makers, there’d be no volume, because no one likes placing limit orders,” he said. “Everyone likes clicking take orders. That’s just how people operate.”
And SigmaSquirrel, who probably gave away more proprietary information than his partners would have liked, said the opportunity is real — even for individuals — but it takes work.
“Anyone going into quoting RFQs thinking they’re going to hold 25 or 30 percent is dead wrong. Not possible,” he said. “But it is possible to do quite well and hold an adequate amount such that this is a very meaningful economic enterprise.”
He paused.
“I also don’t think the public understands the economic opportunity available to them if they just put in the time,” he said. “But that’s everything in the world, man. If it was easy, there would be no edge.”
