One (anonymous) InTrade trader:
I am utterly convinced Intrade participates in its own markets. Every few hours some kind of API hits the bids on the GOP 2012 nomination contract when the bids sum to more 100. It will even short bids at 0.1, which is a money losing proposition when you figure the transaction cost alone of 0.3 (since the price is below 5). Also, the amount of margin required to short all of these bids is in the millions of dollars.
So the actor has to a) not care about the transaction fee and b) have limitless margin. Intrade fits the bill for both of these. a) they don’-t care about transaction fees because they are ultimately collecting them and b) if you only short when the bids are summed to over 100, it’-s essentially an arb.
The trader also tells me that, on the InTrade forums where those questions were asked many times, InTrade never denied that they trade on their own prediction markets.