How do prediction markets work? A plain-English guide
Prediction markets turn questions about the future into prices you can trade. How the prices work, how markets resolve, why they are often accurate, and how to start.
A prediction market is an exchange where people trade on the outcome of future events: elections, Fed decisions, championships, product launches. Each outcome trades as a contract that pays $1 if it happens and $0 if it does not. Its price, from 1¢ to 99¢, is the market's estimate of the probability.
The two largest are Kalshi and Polymarket; our Kalshi vs Polymarket guide compares them.
Prices are probabilities
If "Yes" on a rate cut trades at 70¢, the market says about a 70% chance. You make money when your estimate is better than the market's:
- Buy "Yes" at 70¢ and it happens: you receive $1, a 30¢ profit per contract.
- It does not happen: you lose the 70¢.
- Think the market is too optimistic? Buy "No" at about 30¢.
You can also sell before the result: if news pushes the price from 70¢ to 85¢, selling locks in 15¢ without waiting.
Who sets the price?
Other traders. Prices come from an order book where buyers and sellers post bids and asks. The platform does not bet against you; it charges a fee for matching trades (fees compared). When new information arrives, traders who act on it move the price, which is why prediction markets react to news within minutes.
How markets resolve
Every market has written rules: the question, the source that decides it (an official data release, an election authority, a league), and the deadline. When the outcome is known, winning contracts settle at $1. Reading the rules matters: "Will X happen by June 30?" and "Will X happen in 2026?" are different markets even if they look the same.
Why prediction markets are often accurate
Traders with money on the line have a reason to be right and to correct prices they think are wrong. Aggregating many such views tends to produce well-calibrated probabilities: events priced at 70% happen roughly 70% of the time. They are not crystal balls: thin markets, long-shot bias and unclear rules can all distort prices.
Are prediction markets legal?
In the US, Kalshi and Polymarket US are regulated by the CFTC. Sports contracts are the contested area, with states challenging them in court. See is Kalshi legal in your state and is Polymarket legal in the US.
How to get started
- Pick a platform you can use where you live (comparison).
- Start small on a market you understand well.
- Use limit orders to control your price.
- Read the rules before you buy.
- Track deadlines: our resolution calendar lists what closes each day.
Platform-specific walkthroughs: how Kalshi works and how Polymarket works.
Prediction markets: frequently asked questions
What is a prediction market, in one sentence?
An exchange where you buy and sell contracts that pay $1 if an event happens, so the price shows the crowd's probability.
Are prediction markets gambling?
In the US, Kalshi and Polymarket US are regulated as exchanges by the CFTC, not as casinos. You trade against other users, can exit before the result, and the platform earns fees. Some states still treat sports contracts as betting.
How accurate are prediction markets?
On liquid markets, quite: outcomes priced at 70% tend to happen about 70% of the time. Thin markets and long shots are less reliable.
What is the best prediction market?
For US users, Kalshi and Polymarket US are the largest; outside the US, global Polymarket has the widest catalogue. Our comparison helps you choose.
