Open Kalshi or Polymarket on any given day, and you'll probably find something new to trade. Maybe it's a question about the next Federal Reserve meeting, an upcoming election, or whether a particular NFL team will make the playoffs. But how do prediction markets create new markets, and who decides which questions deserve a spot on the exchange?
It's not quite as simple as someone having an idea and hitting publish. Before a contract reaches traders, someone has to define exactly what they're asking, how they'll determine the answer, and whether the exchange can offer it. Some ideas make it through that process, while plenty of others never see the light of day.
Where Do All These Market Ideas Come From?
The news cycle does a lot of the work for prediction market exchanges. When something important is approaching, whether it's an economic announcement, a major election, or a sporting event, people will likely have different opinions about what happens next. Those disagreements are what make an event interesting to trade.
Exchanges look for those opportunities, but they don't rely entirely on their own research. They also listen to customers and pay attention to which subjects are attracting interest. For instance, Kalshi lets users submit suggestions for markets they'd like to trade.
The Fine Print is Where the Real Work Happens
I've said it before, but one of the most important habits a prediction market trader can develop is reading the contract rules. It's tempting to look at the headline, check the price, and assume you understand the question. Sometimes that's enough to get the general idea, but it isn't always enough to understand what you're actually trading.
Picture a contract asking whether an automaker will release a new electric vehicle by December 31. At first glance, that seems pretty straightforward. But what if the company unveils the vehicle in November, starts taking reservations in December, and doesn't deliver the first one until January?
The answer depends entirely on how the contract was written. An exchange might require a confirmed customer delivery before 11:59 p.m. Eastern on December 31. Another contract could define the event around an official product announcement instead.
Someone Has to Confirm the Result
Sports are relatively easy to understand from a settlement perspective. If a contract asks whether the Philadelphia Eagles will win a game, the official final score provides the answer. Economic markets can be similarly straightforward when they're tied to a specific government report.
But plenty of events don't have that kind of clean ending. A politician might announce an intention to resign without formally leaving office. A company might reveal a new product but delay its release, leaving people arguing about whether it actually launched.
This is why exchanges identify resolution sources and conditions before a market opens. They need a dependable way to determine what happened without making up the answer afterward. Depending on the contract, that could mean relying on a government publication, an official company statement, or another designated source.
Not every platform settles contracts using the same system. Kalshi relies on the terms and sources specified in its contracts, while Polymarket's international platform uses an oracle-based resolution process that allows proposed outcomes to be challenged. The methods differ, but both are designed to establish which outcome wins.
There's Also the Regulatory Side
Creating a market is one thing. Having the legal authority to offer it is another, particularly in the United States.
Kalshi operates as a Designated Contract Market, or DCM, under the Commodity Futures Trading Commission (CFTC). That puts the exchange within the federal derivatives regulatory system, with requirements governing the products it lists. It can't simply ignore those obligations because customers are interested in a particular event.
One procedure available to federally regulated exchanges is called self-certification. The exchange submits the contract terms to the CFTC and certifies that the product complies with applicable federal laws and regulations. Under the standard procedure, the exchange generally must submit the application no later than the business day before the contract is listed.
This doesn't mean CFTC officials have separately approved every new market. The exchange is responsible for meeting the requirements, and regulators can challenge noncompliant contracts. A company's federal designation doesn't automatically make every possible event contract permissible.
The ongoing disputes over sports prediction markets show why that distinction matters. Several states argue that certain sports contracts fall under their gaming laws, while federally regulated exchanges maintain that qualifying transactions fall under federal derivatives authority. Courts have been asked to resolve those competing interpretations, and the legal questions remain contested.
Getting From an Idea to a Live Market
By the time a new market appears on your screen, most of the difficult decisions have already happened behind the scenes. The exchange chooses an event, develops the contract, and decides how it will handle the outcome. It also has to complete any applicable regulatory procedures.
While every platform has its own approach, the general process looks something like this:
- Identify an event: The exchange spots an opportunity or receives an idea from a customer.
- Decide whether it works: The team considers trading interest, manipulation concerns, and whether the result can be verified.
- Establish the rules: Contract terms specify the event, deadlines, settlement conditions, and resolution sources.
- Complete the necessary reviews: The exchange meets internal requirements and makes any required regulatory filings.
- List the contract: The market becomes available, allowing participants to submit orders when trading opens.
- Settle the outcome: After the event, the contract rules determine the result, and winning positions are paid.
Some contracts are naturally easier to prepare than others. A market based on a scheduled economic release may have an obvious deadline and an established data source. An unusual political or entertainment question might take more work to define properly.
Where Does the First Price Come From?
Here's something that surprises some people when they first start following prediction markets. An exchange doesn't necessarily decide what probability to assign to a new event. On an order-book exchange, the price comes from what participants are willing to buy and sell.
Let's say a market opens asking whether inflation will exceed 3% in an upcoming report. One trader might offer 38 cents for a Yes contract, while someone else is willing to sell at 43 cents. Those orders help establish the market, and actual transactions occur when buyers and sellers agree on a price.
Market makers are important to this process because they can quote both sides of a contract. This gives other traders more opportunities to buy or sell without waiting for someone to show the exact opposite opinion. The more active the market, the easier it generally becomes to find someone willing to trade.
But not every new market attracts much activity. Some contracts have relatively few orders, meaning the price displayed on the screen might not be available for a large trade. That's why liquidity matters as much as an interesting event.
Why isn't There a Market for Everything?
Sometimes a major story breaks, everyone starts discussing what might happen, and there's no contract available to trade. That can seem strange when prediction market exchanges are constantly adding new questions. But a trending story doesn't automatically translate into a market that's ready to list.
Timing can be a problem. An event might be over before an exchange has finished reviewing the idea and preparing the contract. Other questions run into trouble because nobody can identify a dependable source for settling the result.
Manipulation concerns and regulatory restrictions can also prevent an exchange from offering a contract. Even if the outcome is measurable, the exchange still has to consider whether the product fits its rules and legal obligations. Customer demand alone isn't enough to settle those questions.
Then there's the practical side of running a marketplace. A contract that attracts almost no trading activity isn't particularly useful to traders, regardless of how clever the question sounds. An exchange can list thousands of markets, but that number doesn't tell you whether those markets are actually worth trading.
I'd rather see an exchange offer fewer contracts with clear rules and active trading than flood its platform with questions nobody touches. There's a difference between giving people more choices and giving them better markets. As prediction markets continue growing, I think that distinction deserves more attention.
What Happens Once the Market is Finished?
Eventually, every event contract reaches the point where trading stops and the exchange has to determine the result. Those two moments aren't always the same. A market might close at a scheduled deadline and remain unsettled until an official announcement or report becomes available.
For a standard Yes or No contract, the winning outcome generally pays $1 per contract, while the losing outcome pays nothing. The exchange determines the winner using the settlement conditions set before trading began. That might happen almost immediately after a sporting event or take longer for a contract tied to an official publication.
You can predict the general event correctly and still misunderstand the contract's outcome requirements. That's why checking the fine print matters from the moment a market opens until the final settlement. What counts isn't necessarily what most people think happened, but what the contract rules say happened.
Frequently Asked Questions About Creating Prediction Markets
Who chooses which prediction markets get listed?
Exchanges generally have teams that find and review potential contracts. They may also consider customer suggestions, upcoming events, and subjects attracting public interest. Kalshi accepts market suggestions, but its team decides which ideas are suitable for listing.
Can regular traders suggest new markets?
Yes, some platforms allow customers to submit ideas for new contracts. Kalshi is one example of an exchange that accepts user suggestions. Whether a proposed market becomes available depends on the platform's review process and applicable requirements.
Does every new prediction market need CFTC approval?
No. Federally regulated exchanges can list eligible contracts through self-certification without obtaining separate affirmative approval for each product. They remain responsible for ensuring those contracts comply with applicable federal laws and regulations.
How do exchanges determine a prediction market winner?
They follow the resolution criteria established in the contract. Depending on the event, the result might come from a sports league, government report, company announcement, or another designated source. Some platforms also use oracle-based systems to determine and challenge outcomes.
Who sets the price of a new prediction market?
On an order-book exchange, buyers, sellers, and market makers establish prices through their orders and trades. The exchange provides the trading system rather than assigning a fixed probability to the event. Prices can move as new information arrives and traders adjust their positions.
Why do some market suggestions get rejected?
An idea may be difficult to settle, vulnerable to manipulation, subject to regulatory restrictions, or unlikely to attract enough trading activity. Exchanges need contracts with clear outcomes and workable rules. Not every interesting question meets those standards.
How long does it take for an exchange to create a market?
There isn't one standard timeline. Some contracts are relatively simple because the event and settlement source are already established. Others require more detailed rules, additional reviews, or regulatory procedures before they can be listed.