Prediction market definition: a prediction market is an exchange where people trade contracts on the outcome of future events — an election, a Fed decision, a football match. Each contract pays $1 if the event happens and $0 if it doesn't.

What is a prediction market?

Prices as probabilities

Because a winning share always pays $1, its price reads as a probability. If YES on "Will it rain in Rome tomorrow?" trades at 30¢, the market collectively estimates about a 30% chance. Prices move as new information arrives and as traders buy and sell.

An exchange, not a bookmaker

Unlike a bookmaker, a prediction market exchange doesn't set the odds. Buyers and sellers do, through an order book. The platform earns fees instead of a margin.

Example

You think a candidate's chance of winning is 50%, but YES trades at 40¢. You buy 100 shares for $40. If the candidate wins, you receive $100 — a $60 profit before fees. If not, you lose $40. Your expected value is 0.50 × $100 − $40 = +$10.

Why prediction markets matter

  • Real-time forecasts. Prices update in seconds when news breaks, and research finds them often accurate (Wolfers and Zitzewitz, 2004).
  • Skin in the game. Traders risk money, which rewards being right over being loud.
  • Clear risk. Your maximum loss on a share is the price you paid.

Popular platforms include Polymarket and Kalshi. Start with how prediction markets work.

Official source: Polymarket docs: Markets and events.

Next step

In the United States, the regulated route is the Polymarket US app. Read our guides on signing up and depositing to get started, start small and only use money you can afford to lose.