How prediction markets work
A prediction market lets you trade on the outcome of a future event, such as an election, a Fed decision or a game, by buying Yes or No contracts that pay $1 if you’re right and $0 if you’re wrong. The price of a contract reflects the market’s estimate of the chance, so a 60¢ Yes means about 60%. In the US, the major prediction markets are exchanges regulated by the CFTC.
The life of a contract
| Stage | What happens | What to check |
|---|---|---|
| 1. Listing | The exchange lists a question with a precise rule for how it settles | The resolution rules and source, word for word |
| 2. Trading | Traders buy and sell Yes and No; the price moves with news | The price, the spread between bid and ask, and the fee |
| 3. Selling early (optional) | You can sell before the outcome to lock in a gain or cut a loss | Whether selling now beats holding, after fees |
| 4. Resolution | The outcome is confirmed under the market’s rules | That it resolved the way the rules said |
| 5. Payout | Winning contracts pay $1 each; losing ones pay $0 | When the money is withdrawable |
Prices are probabilities
Because a contract pays $1, its price in cents reads as a probability. As traders react to news, the price moves, so the market works as a live, crowd-sourced forecast. It isn’t a guarantee: a 90¢ favourite still loses about one time in ten. To turn prices into odds and see how fees change your break-even, read how to read implied probability.
How you make or lose money
If you buy Yes at 60¢ and the event happens, each contract pays $1, a 40¢ profit before fees. If it doesn’t, you lose your 60¢. You can also sell before the event resolves, locking in a gain or loss as the price moves.
The exchange makes money from fees, not from your losses. Kalshi’s taker fee is 0.07 × contracts × price × (1 − price), which comes to $1.75 on 100 contracts at 50¢; Polymarket US uses 0.0695. Fees are highest around 50¢ and shrink toward the extremes.
Who regulates prediction markets?
In the US, the big platforms are designated contract markets regulated by the Commodity Futures Trading Commission (CFTC). Kalshi was designated in November 2020, and Polymarket US (QCX LLC) in July 2025. You must be 18 or over, or older where your state requires. Several states argue that sports contracts are illegal betting, so check our legality tracker for your state. For how this differs from a sportsbook, read prediction markets vs sports betting.
The catch: resolution rules
The most important thing to read before you trade is the market’s resolution rules: the exact wording of how it settles and which source decides. Two markets on the “same” event can settle differently because their rules differ. Careful traders read the rules first.
Ready to pick a platform? See our ranking of the best prediction market sites.
Not financial or betting advice.
Frequently asked questions
How do prediction markets work?
You buy Yes or No contracts on a future event. Each contract pays $1 if you're right and $0 if you're wrong, so the price (say 60¢) reflects the market's estimate of the chance (about 60%). You can hold to settlement or sell early as the price moves.
Are prediction markets legal in the US?
Federally, yes, on CFTC-regulated exchanges such as Kalshi (a designated contract market since November 2020) and Polymarket US (QCX LLC, designated July 9, 2025). But several states argue sports contracts are illegal betting, so availability varies. See our legality tracker.
How do prediction markets make money?
They charge trading fees rather than betting against you. Kalshi's taker fee is 0.07 × contracts × price × (1 − price), about $1.75 on 100 contracts at 50¢. Polymarket US charges 0.0695 on the same formula.
Who is on the other side of my trade?
Another trader, or a market maker posting prices. The exchange matches orders and holds the money; it doesn't need you to lose to make money.
Sources
- CFTC — Kalshi designated a contract market (press release 8302-20)
- CFTC — Polymarket US Amended Order of Designation (QCX LLC)
- Kalshi Fee Schedule (effective February 5, 2026; official PDF)
- Polymarket US Docs — Fees
- Polymarket US Docs — Sell early
- Kalshi Help Center — signing up as an individual (18+)
Last checked:
18+ (21+ where required). Prediction markets involve risk of loss — only trade what you can afford to lose. Gambling problem? Call or text 1-800-MY-RESET (National Problem Gambling Helpline, 24/7).
Last updated 2026-10-18. Not financial or betting advice.