Isn't insider trading on a prediction market only wrong to the extent the insider is violating some duty of secrecy to the company?

And isn't that just between them and their company in a case-by-case sense?

If there was some valuable-to-the-public information that the company did not care about keeping private but just hadn't bothered to make public, for whatever reason, and an insider traded on it on a prediction market, that would only benefit the public's interest in information and would not violate any duty to the company. It'd be a pure win for everyone.

It seems unfair to other traders, the way it would be in the stock market, but in prediction markets (unlike the stock market) all participants are explicitly taking on the risk that somebody else might have better access to information than they do. So it's not subverting the system in the way we have decided it does in stock markets.

A lot of commenters are getting the wrong take here by looking at this like it's a stock market where there is some society-level interest in giving participants protection from having less information than insiders. It's just a different thing.

The thing is you're still thinking of these insiders as someone who just got a juicy stock tip from a relative.

The much more serious problem is when these insiders actually have their hands on the levers which decide the outcome. It's really no different than a mobster who bets a bunch on money on an unlikely outcome then threatens one side to throw the match.

What possible economic benefit is there to society to allow ordinary people to bet in markets like that?

Would you really like to live in a world where "Will we nuke Iran?" Is a bet you can make? Then someone in government sees how much money they could make if they bet yes & push the button?

> Isn't insider trading on a prediction market only wrong to the extent the insider is violating some duty of secrecy to the company?

Yes.

Prediction markets, for corruption reasons, are regulated by the CFTC. In commodities markets, actors are assumed to be making trades based on propriety information. Hedging is the whole purpose!

> …like it's a stock market where there is some society-level interest in giving participants protection from having less information than insiders.

Ah, no!

Insider trading in the stock market is (usually) only illegal in your first case: when the person trading is violating confidentiality.

It is not about fairness.

Fairness is a poor proxy for whether specific trading is illegal.

For example:

If a company accidentally leaves a press release for a merger publicly available, I happen to guess the URL, and then I trade on it: Unfair (I have access to insider information that other market participants do not) but legal!

If I work at the company, am sent the press release to copy edit, and then trade on it: Illegal. I have a duty to the company not to trade on it.

No, commenters here simply take into account that predictions markets have historically classified themselves as futures markets and not as gambling.

Allowing information asymmetry, like insider trading, undermines the regulatory argument that keeps these markets legal.

The insider has perverse incentives as an employee.

I think there is a society-level interest. It's very bad for the business environment if every employee of every company has monetary incentives to leak private information. It structurally encourages businesses to set up strict information silos where cross-team collaboration is hard no employee can ever be sure of the broader context of their work.