Beginner's guide to prediction markets

If you've never traded a prediction market before, start here. This guide walks you from concept to first contract.

The short answer

A prediction market is an exchange where people trade Yes or No contracts on whether a real-world event will occur. The price of a Yes contract — typically between one and ninety-nine cents — is the market's collective estimate of the probability that the event will happen.

Why this matters

Prediction markets compress crowd information into a single, machine-readable price. When the price of "Fed cuts rates in December" moves from 55 cents to 72 cents, it reflects a real, financially-backed shift in expectations — not a poll, not a pundit, not a tweet.

How the mechanics work

Every contract resolves to either one dollar or zero based on a verifiable outcome. Buyers of Yes pay the current price and receive one dollar if the event occurs. Buyers of No pay the complementary price (one minus the Yes price) and receive one dollar if it doesn't. Exchanges match buyers and sellers continuously, like a stock market.

An example

Suppose a market on "S&P 500 closes above 6,200 by year-end" is trading at 41 cents. Buying a Yes contract costs 41 cents. If the index does close above 6,200, the contract pays one dollar — a 144% return on the premium. If it doesn't, the contract pays zero, and the entire 41 cents is lost.

Where this fits

Prediction markets sit at the intersection of derivatives and information markets. In the United States, the regulated venues — Kalshi, ForecastEx and others — operate under CFTC oversight as Designated Contract Markets. Offshore venues like Polymarket are not legally accessible to US residents today.

What to do next

• Read our ranking of the best US platforms to decide where to open an account.
• Check your state legality page before depositing funds.
• Explore the glossary for terms you'll see across every platform.