You don't have to correctly predict the winner of a football game to make money trading that game on a prediction market. In fact, you could sell your contracts before halftime, collect a profit, and never have to worry about the final score. That's something people overlook when they first discover prediction markets. Most newcomers see a question, pick Yes or No, and assume they're stuck waiting to find out whether they were right.
There's a lot more flexibility than that. Depending on the platform, you can trade price changes, hold contracts until settlement, combine different outcomes, or even use a market to protect yourself against a financial loss. Let's look at six approaches and where each one might make sense.
1. Buying Yes or No Contracts
Nearly every prediction market starts with a question. Will the Fed cut interest rates? Will the Lions win on Sunday? Will a particular movie take home Best Picture? For a standard Yes or No market, you're purchasing a contract that pays $1 if your chosen outcome happens and $0 if it doesn't.
Say the Fed is meeting next week, and contracts predicting an interest rate cut are trading for 60 cents. That price roughly represents a 60% market-implied probability of a cut. You think the Fed will lower rates, so you purchase 100 Yes contracts for $60. If the decision goes your way, you'll receive $100 at settlement, making $40 before fees.
If you're wrong, the $60 is gone. You can also purchase No contracts if you believe the event won't happen. Both sides work under the same basic settlement structure, just with opposite outcomes.
2. Making Your Pick and Leaving It Alone
Maybe you've spent weeks researching an election or following a particular economic announcement. You've concluded and don't particularly care what other traders think between now and the final result. You can simply buy your contracts and hold them.
Imagine purchasing Yes at 40 cents because you believe the market is undervaluing that outcome. If you're correct when everything is officially settled, each contract pays $1, leaving you with 60 cents in profit before fees. If you're wrong, you lose what you paid.
You don't have to sell just because the price moves. A contract could climb from 40 cents to 90 cents, fall back to 50 cents, and still eventually settle at $1. Of course, it could just as easily finish at zero.
One thing worth checking before taking this approach is the settlement language. A market might sound straightforward, but the exact conditions used to determine the result can make a big difference.
3. Selling Your Position Before the Event Finishes
This is where things get more interesting for traders who like following news and market movements. Let's say you buy 100 contracts at 30 cents, spending $30. Later that afternoon, an announcement changes how people view the event, and those same contracts are now trading around 70 cents. You don't have to hang around for the official result. If buyers are willing to pay 70 cents, you can sell your contracts for $70 and walk away with $40 in profit before fees.
The event could ultimately go either way. It doesn't change the profit you've already realized. Plenty of traders approach prediction markets this way, looking for contracts they believe are mispriced and selling when the market moves in their favor. There's a downside, naturally. Prices can fall just as quickly, and you might end up selling for less than you paid.
You also need someone willing to buy your position. A displayed price doesn't guarantee you'll be able to sell every contract at that amount, particularly in markets with little trading activity.
4. Choosing Between Several Possible Winners
Picture opening a market about the Academy Awards. Instead of one Yes-or-No question, you're looking at a list of movies competing for Best Picture. Each film has its own contract price, giving you the chance to take a position on whichever one you believe will win.
These are called categorical markets, and you'll find similar setups for elections, awards, and other events with several possible outcomes.
In a market with one winning selection, that choice generally settles at $1 while the others settle at zero. You aren't necessarily limited to purchasing one selection, either. Depending on the platform, you could spread your money across several possibilities.
Just don't assume all the displayed prices will add up neatly to $1. Differences between buying and selling prices, fees, and market activity can affect the total.
5. Putting Several Outcomes Together
Suppose you're following the Lions on Sunday, have an opinion about the Fed's next decision, and feel confident about an upcoming NBA game.
Rather than making three separate trades, some platforms let you combine those outcomes into one position. Kalshi offers these types of combinations, often called combos.
Here's what one could look like:
- Detroit wins its next football game.
- The Federal Reserve keeps interest rates unchanged.
- Your selected NBA team wins its matchup.
For an all-or-nothing combo, all three outcomes must happen. What if you get the football game and interest rate decision right but miss the basketball game? The combined contract can still settle at zero. Because you're asking several things to happen together, the purchase price can be lower relative to the potential payout.
That doesn't make it easier to profit, though. Some outcomes can also be related, which affects how combinations are priced. Available selections and contract rules vary by platform.
6. Trading to Cover a Financial Risk
Here's a use for prediction markets that has nothing to do with following sports or calling an election. Imagine you own a business and you're concerned that higher interest rates could hurt your finances over the next several months. You might purchase contracts that pay out if the Fed raises rates. If that happens, the money you receive could help offset some of the financial damage elsewhere. That's hedging.
You're effectively paying for a position that becomes valuable if something unfavorable happens. It's not a perfect solution. The contract payout might be nowhere near your actual loss, and the market's settlement rules might not match your circumstances exactly. If rates don't rise, you could lose the money spent on the contracts. Your business might be better off, but the hedge itself would have cost you money.
Before You Trade, Pay Attention to the Details
The type of trade you make is only part of the decision. How much you pay, whether you can exit the position, and what counts as a winning outcome all deserve attention. A few things are particularly worth checking:
- Contract rules: Read the conditions that determine settlement, not just the market headline.
- Available buyers and sellers: A market with little activity can be difficult to enter or exit at your preferred price.
- Fees: Frequent trading can make seemingly small charges add up.
- Unfilled orders: An open order could execute after news changes what the contract is worth.
- Maximum loss: Fully funded Yes or No contracts generally limit your loss to the purchase price and fees, while leveraged products carry different risks.
There's nothing wrong with sticking to simple contracts while you get comfortable with how the market works. You can always explore other approaches once you understand how prices move and what you're actually purchasing.
Prediction Market Trading FAQs
Do I have to predict the outcome to make money?
No. You can buy a contract, sell it after its price increases, and realize a profit before the event is decided. The outcome won't affect a position you've already closed.
What happens if I hold my contract until settlement?
A standard binary contract generally pays $1 if your selected outcome happens and $0 if it doesn't. The platform uses the contract's official resolution rules to determine the result.
Can I lose more than I spend?
For fully funded Yes or No contracts, losses are generally limited to the amount paid plus applicable fees. Leveraged products can carry additional risks, so check the specific contract before trading.
Does a 70-cent contract mean an event has a 70% chance of happening?
It means the market price suggests roughly a 70% implied probability. That doesn't guarantee the actual likelihood is 70%, since prices reflect what traders are currently willing to pay.
Can I use several trading approaches at once?
Yes, if your platform offers them. You might hold one contract until settlement, trade another based on changing prices, and use a third to help manage a financial risk. The important part is knowing what you're trying to accomplish with each position.