Key terms
The basic idea
A prediction market asks a question with a clear answer — Will the Fed cut rates in December? Will the Bills win on Sunday? — and lets people trade contracts on it.
- A "Yes" contract pays $1 if the answer is yes, and $0 if not.
- A "No" contract pays $1 if the answer is no.
- Prices run from 1¢ to 99¢, and "Yes" plus "No" always adds up to about $1.
If "Yes" costs 35¢, the market thinks the event has about a 35% chance. That's the magic: the price is the forecast.
A trade, step by step
- You think the Bills are better than a 55% shot, and "Yes" costs 55¢.
- You buy 100 contracts for $55 (plus a small fee).
- If they win, you receive $100 — a $45 profit before fees.
- If they lose, your contracts are worth $0 — you lose $55, plus any fees you paid.
- Or sell early: if the Bills lead at half-time and "Yes" rises to 80¢, you can sell for $80 and lock in $25.
Run your own numbers with the contract calculator.
Key terms in one table
| Term | Meaning |
|---|---|
| Event contract | A contract that pays $1 if a stated event happens and $0 if not |
| Price | What one contract costs, 1¢–99¢ — read it as a probability |
| Order book | The list of buyers and sellers at each price |
| Spread | The gap between the best buy and sell prices |
| Maker / taker | A maker posts a resting order; a taker fills an existing one (and usually pays the fee) |
| Settlement | When the exchange decides the outcome and pays winning contracts |
| Resolution source | The official source named in the rules (AP, the Fed, a league) |
| DCM | Designated contract market — a CFTC-registered exchange |
Exchanges, brokers and apps
- Exchanges list contracts and match buyers and sellers: Kalshi, Polymarket US, Novig, ProphetX, ForecastEx and others. In the US they're registered with the CFTC.
- Brokers and apps give you access to exchanges' contracts: Robinhood, FanDuel Predicts, DraftKings Predictions, Coinbase, Webull and more. The broker may add its own fee on top of the exchange's.
Either way, you trade against other people, not the platform — unlike a sportsbook, which sets its own odds and profits when you lose.
How to get started
- Pick a platform — see our ranking of the best prediction markets.
- Sign up and verify your identity (18+ on most platforms; 21+ at Novig and ForecastEx).
- Fund your account — bank transfer (ACH) is usually free; cards often cost about 2%.
- Choose a market and read its rules.
- Place a limit order at the price you want, or buy at the market price.
- Hold to settlement or sell early.
A short history
| Year | Milestone |
|---|---|
| 1988 | The University of Iowa launches the Iowa Electronic Markets for election research |
| 2014 | PredictIt opens under a CFTC no-action letter |
| 2020 | Kalshi becomes the first CFTC-designated exchange built for event contracts |
| 2024 | Kalshi wins in court and lists US election contracts |
| 2025 | Sports event contracts launch; volume explodes |
| 2025–26 | Polymarket returns to the US; Robinhood, FanDuel and DraftKings launch; states fight sports contracts in court |
The wider story is in are prediction markets legal?
The risks, plainly
- You can lose everything you pay for a contract.
- Prices are crowd opinions, not certainties — 80% favourites lose one time in five.
- Rules can settle a market differently from what you expected.
- Fees and spreads eat small edges.
- State rules on sports contracts are changing fast.
The five things to learn next
- Prices as probabilities — implied probability and calibration.
- How to place orders — order books and limit orders.
- What it costs — prediction market fees.
- How markets settle — resolution rules.
- Whether it's legal where you live — are prediction markets legal?.
What can you trade?
Many things with a clear, verifiable answer — within each exchange's rules and what its regulator allows (some subjects, like assassinations or terrorism, are excluded): politics, sports, the economy, crypto, esports, video games and entertainment — plus weather and stranger things.
Why prediction markets are good forecasters
When many people with different information put money behind their views, their errors tend to cancel out. Read wisdom of crowds — and, for balance, when markets got it wrong.
Where to start
For most US beginners, Kalshi or Robinhood are the easiest starting points. See our full ranking of the best prediction markets.
