A prediction market is a place where you buy and sell contracts based on whether real-world events will happen. If you’re right, you profit. If you’re wrong, you lose your stake. The contract price — always between $0 and $1 — reflects the market’s collective judgment of how likely the event is to occur.
That’s it. The mechanics are simple. The interesting part is what happens when millions of dollars and thousands of informed people start pricing the same question.
Last updated: March 2026
How Prediction Markets Work
Every prediction market contract works the same way:
- You buy a YES contract if you think the event will happen.
- You buy a NO contract if you think it won’t.
- If you’re right, the contract settles at $1.00. If you’re wrong, it settles at $0.
- The current price of the contract reflects the market’s implied probability — a YES contract trading at $0.62 means the market thinks there’s a 62% chance the event happens.
You don’t have to hold until resolution. You can sell your position anytime. If you bought YES at $0.40 and the price rises to $0.70, you can sell and lock in the gain without waiting for the outcome.
A concrete example
Say a question is: “Will the Federal Reserve cut interest rates before July 2026?”
- You think a rate cut is likely. You buy 100 YES contracts at $0.55 each. You spend $55.
- Economic data changes. The market now prices YES at $0.72.
- You sell your 100 contracts for $72. You made $17 on a $55 bet — a 31% return.
- Or you hold. If the Fed cuts rates, contracts settle at $1.00 and you get $100. If not, you get $0.
The platform takes a small fee — typically 1–5% of winnings, depending on the platform. That’s how they make money.
What Makes Them Different from Sports Betting or Stocks
| Prediction Markets | Sports Betting | Stock Market | |
|---|---|---|---|
| What you’re trading | Yes/No outcomes on real events | Sports outcomes vs. a bookmaker’s line | Fractional ownership of companies |
| Who sets the price | Other traders (market-driven) | The bookmaker (house-driven) | Other traders (market-driven) |
| House edge | Low (1–5% fee on winnings) | High (5–10% built into every line) | Minimal (broker commissions, spreads) |
| Resolution | Binary — event happens or it doesn’t | Binary — team wins or loses | Open-ended — price can go anywhere |
| Information value | High — prices aggregate expert forecasts | Low — focused on game-day dynamics | High — prices reflect company fundamentals |
| US regulation | CFTC (event contracts on regulated exchanges) | State gambling commissions | SEC |
The key structural difference from sports betting: you’re trading against other market participants, not against a bookmaker with a built-in edge. That changes the math significantly over time. And unlike stocks, prediction market contracts have a defined end date and a binary outcome — making risk much easier to size.
What Kinds of Events Can You Trade?
Prediction markets cover a wide range of event categories. The availability depends on which platform you use.
Political & Electoral
Elections, legislative outcomes, policy decisions. “Will Congress pass a debt ceiling increase before August 2026?” “Who will win the 2028 Presidential election?” These are the highest-volume markets on most platforms.
Economic & Financial
Fed rate decisions, CPI prints, GDP growth, unemployment numbers. Traders with finance backgrounds often find these markets particularly attractive because the underlying data is public and well-studied.
Sports
Championship winners, playoff outcomes, season records. Available on some platforms (notably FanDuel Predicts, which targets sports bettors transitioning to prediction markets).
Science, Tech & Culture
“Will GPT-5 be released before Q3 2026?” “Will SpaceX reach Mars by 2030?” These markets tend to have lower liquidity but attract knowledgeable specialists with edge.
Geopolitical
International conflicts, elections in other countries, diplomatic agreements. High uncertainty, high interest during major global events.
Why Prediction Markets Are Useful (Beyond Gambling)
There’s a reason economists take prediction markets seriously. They consistently outperform polls, expert panels, and traditional forecasting models at predicting real-world outcomes. The reason is structural:
- People put money on their beliefs. When someone buys a YES contract at $0.70, they’re putting real dollars behind their forecast. Accountability filters out noise faster than surveys or punditry.
- Information aggregates across thousands of traders. Different people know different things. A trader in DC might know something about legislation that a trader in California doesn’t. Markets synthesize that distributed knowledge into a single price.
- Bad forecasters lose money and exit. The population of active traders self-selects toward accuracy over time, in a way that poll respondents or TV commentators do not.
Research from places like CFTC, Iowa Electronic Markets, and academic studies of Intrade consistently found that prediction market prices beat other forecasting methods — especially for political and economic outcomes. The 2024 U.S. election was a high-profile example: prediction markets had a significantly different picture than major polls for weeks before election night.
Who Regulates Prediction Markets in the US?
Regulated prediction markets in the US operate as CFTC-designated contract markets (DCMs) or operate under CFTC exemptions. The Commodity Futures Trading Commission treats event contracts similarly to commodity futures — they’re derivatives, not gambling.
This is different from offshore prediction markets like Polymarket, which operates on blockchain infrastructure and is not available to US residents for real-money trading.
The regulatory landscape changed significantly in 2023–2024 when the CFTC issued guidance and then cleared the path for election markets on domestic exchanges. Kalshi, the largest regulated US prediction market, fought a legal battle with the CFTC over political event contracts and won in 2024, establishing that election markets are legal for US traders.
For more on the legal side, see: Are Prediction Markets Legal? (US Guide by State)
The Main US Prediction Market Platforms
As of early 2026, three platforms dominate the US regulated prediction market space:
| Platform | Best For | Regulation | Typical Fee |
|---|---|---|---|
| Kalshi | Widest market selection, politics & econ | CFTC-regulated DCM | ~1–3% of winnings |
| Polymarket | Crypto users, global events (non-US residents) | Offshore (not available to US) | ~2% taker fee |
| FanDuel Predicts | Sports-adjacent bettors, familiar interface | State-regulated (varies) | ~5–10% margin |
We’ve reviewed each one in detail. The right choice depends on what you want to trade, where you live, and what fees you’re willing to pay:
Or see our full side-by-side: Best Prediction Market Platforms 2026
Are Prediction Markets Legal Where You Live?
For US residents: it depends on which platform and which state. Kalshi is federally regulated and available in all 50 states. FanDuel Predicts availability varies by state because it operates under state gaming licenses. Polymarket is not available to US residents.
For non-US residents: Polymarket is the dominant platform and is accessible in most countries. Kalshi also accepts some international users.
Full details: Are Prediction Markets Legal?
Common Questions
Is a prediction market the same as sports betting?
No. The mechanics are similar — you’re betting on an outcome — but the structure is different. Sports books set lines and you bet against the house. Prediction markets are peer-to-peer: you trade against other participants. The house edge is also much lower in prediction markets (typically 1–5% vs. 5–10% in sportsbooks). And prediction markets cover far more than sports — economics, politics, tech, geopolitics.
Can you make money trading prediction markets?
Yes, if you have better information or better judgment than the average market participant in a given domain. It’s not easy. The market prices are efficient enough that casual traders don’t have a consistent edge. But domain experts — people who know more about policy, finance, or specific industries — can find genuine edge. Like any market, skill compounds over time.
What’s the minimum to start?
Kalshi allows deposits as low as $10. FanDuel Predicts has a similar floor. You can meaningfully participate with $50–$100, especially in markets with small contract denominations.
Are prediction market winnings taxable?
Yes, in the US. Winnings are generally treated as ordinary income or capital gains depending on how the IRS classifies the underlying contract. The tax treatment is still evolving — especially as the CFTC has formalized the regulated status of event contracts. See our Prediction Market Tax Guide for current guidance.
What happens if a prediction market platform shuts down?
For regulated US platforms (Kalshi), CFTC oversight requires fund segregation — your money is legally separate from company funds. Unregulated offshore platforms carry higher risk. This is one of the primary criteria in our platform ratings: see the Methodology page for details on how we score regulatory status.
Ready to Start?
If you want a step-by-step walkthrough of placing your first trade — account setup, how to read contract pages, how to size positions — see: Your First Prediction Market Trade
If you want to compare platforms before committing: Best Prediction Market Platforms 2026