Prediction markets: what they are and how they work

A prediction market is a platform where you buy and sell contracts on whether something will happen. Each contract pays 1 dollar if the outcome comes true and 0 if it does not, and its price, between 0 and 1, is read as the probability the market assigns to that outcome. If “Yes” trades at 0.62, participants are saying they see roughly a 62% chance.

What a prediction market is

Think of a stock market, except the thing being traded is a question with a closed answer: “Will this candidate win?”, “Will the Fed cut rates at the next meeting?” When the event ends, contracts on the correct outcome pay 1 USD and the rest are worth 0.

Nobody sets the price. It comes from users’ buy and sell orders, so it moves when news breaks or the deadline gets close.

How a price turns into a probability

The arithmetic is simple. If you buy a “Yes” contract at 0.40, you risk 0.40 to win 0.60 more if it happens. Ignoring fees, the event would have to occur more than 4 times in 10 for the trade to pay off over time. The market price summarizes that collective bet.

Three caveats:

• A price is not a certainty. A 70% reading still means the opposite happens 3 times in 10, if the market has the number right.
• Liquidity matters. In a thin market one order can move the price, and the percentage tells you little.
• Fees separate the price from a pure probability. Whoever takes an existing order pays a fee that depends on the category. The details are in Polymarket fees.

To read a specific market properly, how to read Polymarket odds explains the gap between the last price, the best offer and the volume.

How they differ from polls and bookmakers

	Poll	Bookmaker	Prediction market
Who sets the number	The result of asking a sample	The bookmaker, which publishes odds	Users’ order book
What is at stake	Nothing	Money against the house	Money against other users
When it updates	When another poll is run	When the bookmaker moves the odds	Continuously, with every order
Can you exit early	Not applicable	Depends on the operator	Yes, by selling the contract

A poll measures what people say they would do. A market measures what they are willing to pay to back an opinion. That does not automatically make it more accurate: it is a different instrument with its own biases. At a traditional bookmaker you play against whoever sets the odds. On Polymarket the platform does not take the other side: prices come from users, and the platform charges a fee to whoever takes an order. Even so, several regulators treat these platforms as gambling, as you will see below.

The main platforms

Polymarket is the best known. It runs on crypto: you deposit USDC and Polymarket converts it to pUSD, its internal currency on Polygon. It lists politics, sports, crypto, economics, culture and geopolitics. There is a summary in what is Polymarket and the live markets are on the markets board.

Kalshi is a US-based exchange for event contracts. The CFTC, the US derivatives regulator, designated KalshiEX LLC as a designated contract market (DCM) on 4 November 2020, according to its official press release. It operates in dollars and is built for US residents. The full comparison is in Polymarket vs Kalshi.

In the United States, Polymarket runs through polymarket.us, a separate entity from the global platform.

How markets settle

When the event ends, someone has to say what happened. On Polymarket that job belongs to UMA’s optimistic oracle: a participant proposes the outcome and posts a bond, a 2-hour dispute window opens, and if nobody challenges it the market settles. If someone does, UMA token holders vote. What governs is the rules written on each market’s page, not the headline. The process and its sources are in how Polymarket markets resolve and in the official help article.

Are prediction markets legal?

It depends on the country, and the answer changes often. What is documented:

• Polymarket restricts several countries itself, including the United States, the United Kingdom, France, Germany and Brazil, according to its official list.
• Local regulators have ordered blocks in Spain, Argentina, Colombia, India and the Philippines.
• In countries such as Mexico, Peru or Chile there is no known block, but no specific licence either: a grey area.

Check your country in the countries section and in where Polymarket is legal. This page does not explain how to get around blocks, and using a VPN to do so breaks Polymarket’s terms. For tax, the general principles are in the Polymarket taxes guide.

Risks to know about

• You can lose everything you put into a contract. If the event does not happen, it is worth 0.
• The price can be wrong. Thin markets are easy to move.
• Rules matter. Two markets with similar headlines can settle differently. Read the rules before you buy.
• The money moves as crypto. Sending an unsupported token or using the wrong network can mean an unrecoverable loss. If you already made a deposit and it is missing, work through this checklist.
• Legal risk is yours. A platform letting you in does not mean your country allows it.

More in strategies and risks and is Polymarket legit.

Where to go next

If you only want to look, the markets board shows live probabilities, and the event pages group what markets say about elections and sport, such as the 2026 Ballon d’Or. To trade: how to deposit, limit orders with zero fees, the fee calculator, how to withdraw and the app on Android and iOS. If you write code, the public API reads markets and prices without a key.

Frequently asked questions

What is a prediction market in plain words?

A site where you buy contracts on whether something will happen. If it does, the contract pays 1 USD; if not, 0. The price between 0 and 1 is read as the probability the market gives it.

Is a prediction market the same as betting?

It looks similar, because you put money on an outcome, and that is why several regulators treat it as gambling. The technical difference is that no house sets odds against you: you trade against other users and can sell before the event ends.

Are prediction markets more accurate than polls?

No rule says so. They react faster because they update with every order, but a thin market or one with ambiguous rules can give a percentage that is not very useful.

Which prediction markets exist?

The two this guide covers are Polymarket, which runs on crypto outside the United States, and Kalshi, a CFTC-regulated exchange built for US residents. Before using either, check whether it is available and allowed in your country.