Cross-platform directional arbitrage involves buying a contract on one platform where it's cheaper, betting that prices will converge or that you can profit from the price difference. Unlike risk-free arbitrage, this requires a prediction about price movements.
What is cross-platform directional arbitrage?
Directional arbitrage is buying a contract on one platform where it's cheaper, hoping prices will converge or that you can sell it at a higher price on another platform. This is not risk-free arbitrage—it requires a prediction about price movements.
Example: Directional arbitrage
Event: "Bitcoin reaches $100,000 by end of 2024"
Polymarket (Cheaper)
YES: $0.58
NO: $0.42
Total: $1.00
Kalshi
YES: $0.63
NO: $0.37
Total: $1.00
Strategy:
Buy YES on Polymarket at $0.58 (cheaper), hoping prices converge or you can sell higher on Kalshi at $0.63.
Risks:
- Prices may not converge—they could diverge further
- If YES resolves, you profit $0.42 per contract (vs $0.37 if bought on Kalshi)
- If NO resolves, you lose $0.58 per contract
- This is a directional bet, not risk-free arbitrage
Important distinction
When directional arbitrage makes sense
Directional arbitrage can be profitable if you have a strong conviction about price convergence or believe one platform's pricing is more accurate:
You believe prices will converge
If you're confident that the price difference is temporary and will converge, buying the cheaper contract can be profitable. However, this requires accurate prediction of price movements.
You believe one platform is more accurate
If you think the cheaper price reflects better information or more accurate market assessment, buying on that platform gives you a better entry price. But you're still making a directional bet.
You can't execute risk-free arbitrage
If you can't find YES + NO combos for less than $1.00, directional arbitrage might be the only option. But remember: this is a prediction, not guaranteed profit.
Risks of directional arbitrage
Prices may not converge
Prices can diverge further instead of converging. The platform with the cheaper price might be correctly pricing new information, while the more expensive platform hasn't updated yet.
You're exposed to outcome risk
Unlike risk-free arbitrage, directional arbitrage exposes you to the actual outcome. If the event resolves against your position, you lose money.
Execution timing matters
You need to execute quickly before prices move. If prices move against you between identifying the opportunity and executing, your profit disappears or becomes a loss.
Focus on risk-free arbitrage first
Risk-free arbitrage (YES + NO combo for less than $1.00) guarantees profit regardless of outcome. Directional arbitrage requires predictions and carries risk. Get tools to identify risk-free opportunities first.