How prediction markets work
Short answer
A prediction market contract pays $1 if an event happens and nothing if it does not. Its price in cents is the crowd's probability estimate. You make money by buying contracts the crowd has priced below their true likelihood — and by exiting before resolution when the price catches up.
Cents are probabilities
This is the whole mental model. "Fed cuts in March" trading at 62¢ means the market assigns a 62% chance. Buy at 62¢ and you risk 62 cents to win 38. If you think the real number is 75%, you have a 13-point edge and the contract is cheap.
Both sides always sum to a dollar
YES at 62¢ implies NO at 38¢. Selling YES is the same trade as buying NO, which matters when one side has better liquidity than the other. On thin markets you will often get a better fill by flipping to the other side of the same question.
Where the edge comes from
- Information speed. You saw the filing, the exit poll or the on-chain move before the price adjusted.
- Better base rates. The crowd systematically overprices dramatic longshots and underprices boring continuation.
- Cross-venue pricing. The same event is often a few cents apart on Polymarket and Kalshi.
- Flow reading. Sizeable, repeated buying from wallets with a real track record is a signal; one impatient taker is not.
Resolution risk is real risk
Most losses that feel unfair come from resolution wording, not from being wrong about the world. Read the criteria before you trade: which source decides, what timezone the deadline uses, and what happens in ambiguous cases. A market you understood correctly can still settle against you on a technicality.
Liquidity and short timeframes
Long-dated event markets can be deep; a five-minute crypto binary is a different animal entirely. There, spread and speed dominate, which is why traders working that timeframe use a dedicated terminal rather than the venue's general interface.
Next steps
FAQ
+ What is a prediction market contract?
A contract that pays $1 if a stated event happens and $0 if it does not. Its price in cents is the market's estimate of the probability.
+ Is trading prediction markets gambling?
Mechanically it resembles betting, but the pricing is continuous and two-sided, so a trader with better information can extract expectancy the same way they would in options. Without an information or modelling edge, it behaves like gambling.
+ How do markets resolve?
Each market has a written resolution source and criteria. Disputes are handled by the venue's resolution process — on Polymarket via an oracle, on Kalshi via the exchange's stated source.