How do prediction markets work?
On prediction markets, you can trade event contracts tied to real-world events. These can be sports prediction markets, culture prediction markets, or any number of other categories. You, the customer, then have the option to buy and sell yes or no event contracts based on these predictions. This is done at prediction exchanges which facilitate the peer-2-peer trading of these predictions.
Let’s look at an example. One of the political prediction markets you might find could be, “Will any presidential candidate win outright in the first round of the Brazil election?” This question is the prediction market. Beneath that prediction market, you will then have a yes or no option such as:
- Yes - 13c.
- No - 89c.
These are the event contracts you can buy and sell for that prediction. Throughout the history of prediction markets and in most sites today, the settlement value of event contracts is typically $1, and their actual buy/sell price varies depending on user sentiment and which is seen as the most likely outcome.
If you buy a yes or no event contract relating to a prediction, you can then do two things with it:
- Sell it - if the price of the event contract shifts in your favor, you could potentially sell it to try and make a return.
- Hold it - if you are happy with your trade and think you have made the right prediction, you can hold your contracts until the event happens. At that point, if you got it right, you will get the settlement value of your event contract (usually $1), minus any fees.
When we look into what prediction markets are, these are the basics - crypto prediction market sites and other exchanges are simply the facilitators of these peer to peer trades. For more insight, we’ve listed some prediction examples we’ve previously seen in the table below, and you can also check out our prediction markets news page for general industry updates.
| Prediction Market | Yes | No | Exchange |
|---|---|---|---|
| Charlotte Hornets vs Miami Heat (Charlotte to win - NBA Play-In) | 69c | 32c | Polymarket |
| Party to Control US House of Representatives in 2026 (Democrat) | 83c | 18c | Crypto.com |
| Will the US confirm that aliens exist before 2027? | 19.7c | 80.5c | Kalshi |
| Will Bitcoin be above $200k by next year? | 9c | 92c | Kalshi |
Pros and cons of prediction markets
Once you understand how prediction markets work, they are easy to get on with. There’s plenty of variety, the exchanges are CFTC regulated, and as it’s a peer-2-peer trading system, no house to set prices. However, it does undoubtedly come with a steeper learning curve.
Pros and Cons
Pros
- Lots of prediction market variety
- Low trading fees
- CFTC regulated
- Great security and transparency
Cons
- Steep initial learning curve
Three top prediction trading exchanges you can try now
There are an ever-increasing number of general and tech prediction market sites, but we believe that some are better than others. With that in mind, we’ve used our knowledge and experiences to recommend three exchanges you can sign up for in the US today. Each of these sites has a diverse prediction market offering, and is regulated by the CFTC.
Kalshi - great for trade volume
Crypto.com - versatile sports predictions
Polymarket - diverse political and economical predictions
Ready to give prediction trading a try?
We hope you’ve found this guide on what are prediction markets useful and you understand how they work. This is a new form of trading where you can potentially make use of your knowledge of different real-world subjects such as politics, the economy, and crypto. If you are interested and think it’s something you wish to try, please feel free to use any of the banners featured on this page to sign up at our three recommended operators - Kalshi, Polymarket, or Crypto.com.
Prediction market FAQs
What do prediction market probabilities mean?
These are an indirect result of market forces. Prices for event contracts at prediction markets are determined by seller behavior, not a centralized authority. As a result, if an “yes” contract is trading for 58c, it can be inferred that the market believes the chances of that event happening are 58%.
Are prediction markets legit?
Crypto.com, Kalshi, and Polymarket are, yes. These are all CFTC (Commodity Futures Trading Commission) regulated exchanges.
Can you make money with prediction markets?
Yes, you can. Either by buying event contracts and selling them when prices rise. Or holding until the contract settles and collecting the returns if the prediction was correct. Typically, every correct event contract will settle for $1, minus any fees when applicable.