What a prediction market is
A prediction market is an exchange where people buy and sell contracts whose value depends on the outcome of a future event. Instead of a bookmaker setting odds, participants trade with each other, and the price that emerges is a live, money-backed estimate of how likely the event is. Economists have studied these markets for decades, the idea that prices aggregate information better than any single forecaster is an old one, but they’ve only recently become a mainstream American product.
Yes/no contracts and what the price means
The building block is the yes/no contract: an agreement that pays $1 if a specific event happens and $0 if it doesn’t. Because the payoff is capped at $1, contracts trade between $0.00 and $1.00, often quoted as 0–100 cents, and the price doubles as a probability. A contract trading at 64 cents is the market saying “about 64% likely.”
If you buy at 64¢ and you’re right, you collect $1, a profit of 36¢ per contract, or about 56% on your stake. If you’re wrong, the contract settles at zero and you lose your 64¢. You can also take the other side: a “no” position at 36¢ pays $1 if the event doesn’t happen. The implied probability of any price is just the price itself, that’s the elegance of the format, and our glossary entry on implied probability walks through how to compare it with your own view.
Prices move like any market
Because contracts are traded, their prices respond to news within minutes: a poll, an injury report, a court ruling, a jobs number. If you bought early and the market moves your way, you can sell your position at a profit before the event resolves: no need to wait for the final outcome. Markets with more participants trade in tighter ranges, while thin markets can swing sharply on modest volume.
How CFTC-regulated event contracts work
In the United States, event contracts are treated as derivatives, the CFTC classifies them as swaps, and they trade on exchanges the agency regulates, called designated contract markets, or DCMs. That’s the same federal framework that governs futures exchanges, and it comes with real obligations: registered exchanges must self-certify the contracts they list, run market surveillance to detect manipulation, and follow federal rules on customer protection and anti-money-laundering.
The CFTC also has a special authority over event contracts specifically: it can review listed contracts and, in narrow categories, including contracts involving unlawful activity, terrorism, assassination, war, or gaming, determine that they’re contrary to the public interest. That review power is why the boundary between “financial product” and “wager” is argued over so intensely, and why sports contracts in particular attract regulatory attention. More on the current state of that debate below.
The leading platforms
Two names come up most often in the American conversation. Kalshi is a CFTC-regulated exchange that lists markets on topics ranging from economic data to elections to sports. Polymarket built its following as a crypto-native market and now also operates through a CFTC-regulated US exchange. Both let users trade yes/no contracts priced in cents, and both publish rules for every market they list. Other venues, including brokerages and trading apps, have added event contracts of their own, and our prediction markets hub tracks which platforms are live.
A practical note: platforms differ in which markets they offer and where those markets are available. The platform’s own site is the authoritative source for what you can trade from your location.
Fees and spreads
Exchanges earn money on fees, not on your losses. Trading fees vary by platform and market, sometimes charged when you enter, sometimes when you exit or on profits, and every market carries a spread: the difference between the best price available to buy and the best price available to sell. In liquid markets like major games or elections, spreads are tight. In obscure markets, they can be wide enough to swallow a small edge.
Fees and spreads are the prediction-market equivalent of the vig at a sportsbook: friction you pay to participate. Before trading, read the fee schedule and look at the spread. If the cost of getting in and out is larger than your expected edge, the trade doesn’t make sense, however good your read on the event.
What markets exist
Prediction markets list contracts on just about anything measurable with a deadline:
- Sports, game winners, championship outcomes, player milestones and season-long awards.
- Politics, elections, legislation, confirmation votes and policy decisions.
- Economics, interest rate decisions, inflation and jobs reports, GDP figures.
- Weather and climate, temperature records, storm counts, rainfall totals.
- Culture, awards shows, box office results and viral moments.
Each contract is defined precisely by its rules: what counts as the event happening, by when, and according to which source. The rules are the contract: read them.
Sports event contracts, briefly
Sports markets have become one of the fastest-growing categories on these exchanges, and they’re also the most legally contested. If you’re coming from sports betting, the key mental shift is that you’re trading a contract that can be bought and sold, not placing a bet that sits until the final whistle.
How resolution works
Every contract carries written resolution rules: the event it tracks, the deadline, and the source used to determine the outcome. When the event is determined, contracts settle mechanically, yes pays $1, no pays $0, and the market closes. If you’d rather not wait, you can typically sell your position earlier at whatever the market is paying.
The fine print matters more than newcomers expect. Two contracts that sound identical can resolve differently because of a deadline or a definition: “will the bill pass” might mean “signed into law” in one market and “passed by both chambers” in another. Disputed or ambiguous outcomes are handled under each exchange’s rulebook, which spells out the resolution process and the source of record. Read the rules before you trade, not after.
How prediction markets differ from sportsbooks
If you’re used to sportsbooks, the differences are worth spelling out.
Exchange vs. bookmaker
A sportsbook sets odds and takes the other side of your bet; its margin comes from the vig built into those odds. A prediction market is an exchange: buyers and sellers meet on an order book, prices are set by supply and demand, and the platform earns fees rather than betting against you. Prices on a liquid prediction market reflect the crowd’s collective view rather than one operator’s model.
Trading vs. betting
A sports bet is a commitment: you’re locked into the price until the event ends, unless the book offers a cash-out. A prediction market position is tradable: you can exit at any time there’s a buyer, take a profit if the price has moved your way, or cut a loss if your view has changed. That flexibility is the biggest behavioral difference between the two formats.
What you’re buying
A sports bet pays at fixed odds; a prediction market contract is a standardized instrument that settles at $1 or $0. The formats produce different flavors of risk and reward, and different regulatory treatment: sportsbooks are licensed and supervised by state gaming regulators, while event contracts are federally regulated derivatives. Both formats let you put money behind an outcome: they just get there by different routes.
The legal position, in one paragraph
The CFTC treats event contracts traded on registered exchanges as federal derivatives markets under its jurisdiction, but several states have challenged that position in court, and some have passed laws restricting prediction markets within their borders. The litigation is ongoing. In practice, whether you can trade a given market, especially a sports event contract, depends on the platform and where you live, so check the platform’s own site for current availability before you sign up.
The short version
Prediction markets turn beliefs into prices you can trade. They’re regulated financial exchanges in the US, they charge fees instead of holding a book, and they cover far more than sports, politics, economics, weather, culture. If you’re coming from sports betting, the biggest adjustment is mental: you’re trading a position, not placing a bet. And as with anything where money is at stake, size deliberately, the staking principles in our bankroll guide apply here too.
