A prediction market is an exchange where you buy and sell contracts tied to the outcome of a future event. The market price reflects the crowd's collective estimate of how likely that outcome is, and it updates in real time as new information arrives.
Quick Stats
- A binary contract pays 100 cents if the event happens and 0 if it doesn't.
- The price (0-100 cents) is the market's implied probability.
- You can usually trade out before settlement as the odds move.
The basic contract
Most prediction-market contracts are binary: a single 'yes/no' question with a clear, verifiable resolution. If 'yes' resolves true, a yes share is worth 100 cents; if not, it's worth nothing. You profit by buying below where the event ultimately settles.
Price equals probability
Because a winning share is worth 100 cents, the current price reads directly as a probability: a contract trading at 63 cents implies the market thinks there's about a 63% chance. When the odds shift, so does the price.
Why the crowd is often sharp
Prices aggregate the information and opinions of everyone willing to put money behind a view. Because traders have real money at stake, well-traded markets tend to be hard to beat, much like a sharp betting line.
Risks and responsible use
Prediction-market trades are speculative: prices can move against you and you can lose your stake. Only risk money you can afford to lose, and check the rules and regulation that apply to your jurisdiction and platform before taking part.
Frequently Asked Questions
What is a prediction market in simple terms?
A marketplace where people trade shares that pay out based on whether a real-world event actually happens.
Can you make money on prediction markets?
Potentially, if your read on an outcome is better calibrated than the market's, but they are speculative and losses are possible.
How is it different from a poll?
A poll asks what people think; a prediction market asks what people will back with money, which tends to produce a sharper probability estimate.