What Are Prediction Markets? How They Work
A prediction market is a contract that pays $1 if an event happens, so its price is the crowd's odds. How pricing, settlement and New York access work.
Answer
Prediction markets are venues where you buy and sell contracts tied to the outcome of real-world events — elections, Fed decisions, sports results, cultural moments. Each contract pays $1 if the outcome happens and $0 if it doesn't, so the price (0¢–100¢) is a live probability the crowd is willing to back with real money.
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How they work
Every prediction-market contract is binary. It pays $1 if the outcome resolves 'yes' and $0 if 'no'. The price between those two numbers is the market's implied probability — a contract trading at 62¢ means the crowd, in aggregate, is willing to pay 62 cents for a dollar of upside, so it's pricing roughly a 62% chance.
You don't have to hold to settlement. Prices move as new information hits — a poll, a press conference, an injury report — and you can sell your position at any time, just like a stock. That's why traders watch them: a moving line tells a story in real time, and the timestamp on the tape is often ahead of the news cycle.
Under the hood, US venues are structured as event contract exchanges regulated by the CFTC, the same agency that oversees futures and derivatives. That's what makes them legally distinct from a sportsbook.
Prediction markets vs. stocks vs. sportsbooks
The clearest way to understand prediction markets is to line them up against the two things people already know — the stock market and the sportsbook. All three price expectations, but the structure, counterparty, and payoff shape are different.
| Prediction markets | Stocks | Sportsbooks | |
|---|---|---|---|
| What you trade | Binary event contracts ($0–$1) | Fractional ownership of a company | Fixed-odds wagers on outcomes |
| Price meaning | Implied probability of the event | Present value of future cash flows | House-set odds with margin baked in |
| Counterparty | Another user, via an exchange | Another investor, via an exchange | The house takes the other side |
| Regulator (US) | CFTC (event contracts) | SEC / FINRA | State gaming commissions |
| Can exit early? | Yes — sell any time | Yes — sell any time | Sometimes (cash-out), often at a haircut |
| Typical use | Hedging, information trading, sweat | Long-term investing, trading | Entertainment betting |
High-level comparison. Regulatory status and product specifics vary by platform — always confirm on the venue.
Who runs them
In the US, the two names that matter most are Kalshi and Polymarket. Kalshi is a CFTC-registered Designated Contract Market — the same license class as CME futures — and offers everything from Fed-cut markets to Knicks series odds. Polymarket returned to the US in mid-2025 through a CFTC-regulated affiliate and is currently live for US users.
OG, Crypto.com's prediction-market app, offers event contracts through a CFTC-registered exchange ($25 in rewards when you trade $25 with code NYPREDICTS, available in New York). Player-prop pick'em sits adjacent: Sleeper and Chalkboard let you pick over/under lines on individual athletes, closer in structure to DFS than to a true prediction market.
For a fuller breakdown, see our platforms comparison or our NY legality guide.
Why the prices are worth reading
The academic case for prediction markets — laid out in Wolfers and Zitzewitz's oft-cited Prediction Markets paper for the Journal of Economic Perspectives — is that when people bet real money, they aggregate information faster than polls, pundits, or committees.
That's not a guarantee they're right. Thin markets can be manipulated, and every US election cycle produces at least one high-profile mispricing debate — the *New York Times* DealBook and *Sportico* have both covered how Polymarket and Kalshi lines diverged from polling in 2024 and again in the 2026 NYC mayoral race.
The right posture is the one a trader takes: the price is a hypothesis, not a verdict. Read it, disagree with it, and let the size of the disagreement tell you how confident to be.
Why New Yorkers care
New York is already a market town. The same crowd that argues about Knicks playoff odds, mayoral races, and the next Fed cut now has a venue to put numbers on those arguments — and to disagree with the price.
New York access is broad for the CFTC-regulated venues: Kalshi is live for NY residents, and Polymarket's US app works statewide. State-specific product availability can shift quickly, though; the ongoing CFTC-vs-New York suit is worth tracking.
How to actually get started
Pick a venue that fits what you follow. If you already watch macro, start with a Fed or CPI contract on Kalshi. If you follow city politics, the mayoral and gubernatorial markets on Kalshi and Polymarket are the deepest.
Fund small. First-timers routinely misjudge how much a 10-cent move stings on a big position. Trade an amount you'd be genuinely okay losing while you learn how each market resolves — the resolution source and the exact 'yes' criteria are where surprises live.
Read the settlement language before you click buy. Every reputable exchange publishes it up front; if you can't find it, that's your answer.
Platforms mentioned
- Kalshi review
CFTC-regulated event contracts on politics, economics, and culture.
- Polymarket review
The world's most-watched prediction market — deposit $10 and get a $25 trading bonus.
- OG review
Crypto.com's prediction-market app: trade $25, get $25 in rewards with code NYPREDICTS. Sports, culture, macro and trending contracts, live in New York.
Sources & references
- About event contracts — U.S. Commodity Futures Trading Commission
- Prediction Markets — Wolfers & Zitzewitz — Journal of Economic Perspectives (AEA)
- DealBook coverage of prediction markets — The New York Times
- Prediction markets & sports coverage — Sportico
- Kalshi — official site — Kalshi
- Polymarket — official site — Polymarket
Where to trade this
Trade New York markets on
- CFTC-regulated event contracts on politics, economics, and culture.
- Crypto.com's prediction-market app: trade $25, get $25 in rewards with code NYPREDICTS. Sports, culture, macro and trending contracts, live in New York.
Aff.We earn a commission on partner signups. Disclosure.
FAQ
Frequently asked questions
Are prediction markets the same as gambling?
No. A prediction-market contract is a CFTC-regulated event contract traded between users on an exchange, not a fixed-odds wager against a house. You can sell before settlement, and the price is a live probability rather than a bookmaker's line.
What is a prediction market in one sentence?
A prediction market is an exchange-traded contract that pays $1 if a specific real-world event happens and $0 if it doesn't, so its price between 0 and 100 cents reads as the crowd's implied probability.
Are prediction markets the same as sports betting?
No. Prediction markets price probabilities and let users trade against each other or an exchange, with the CFTC as the US regulator. Sportsbooks set fixed odds, take the other side of your bet themselves, and are licensed by state gaming commissions.
How do prediction markets make money?
Regulated exchanges like Kalshi and Polymarket charge small trading fees and, in some cases, take a cut of settlement rather than embedding a house margin the way a sportsbook does.
Can I lose money on a prediction market?
Yes. Real money is at stake and contracts can settle at zero. Only trade what you can afford to lose, and read the settlement terms on each market before entering.
Are prediction markets legal in the US?
Federally regulated venues like Kalshi and Polymarket's US affiliate are legal at the federal level via CFTC oversight. State-level treatment of specific products still varies — see our New York legality guide for local detail.
What's the difference between Kalshi and Polymarket?
Kalshi is a CFTC-registered US exchange with dollar-denominated contracts and deep macro/political markets. Polymarket is a globally recognized event-market brand that returned to the US in 2025 via a CFTC-regulated affiliate, currently live.
How is a prediction-market price different from polling?
Polls sample opinions; prediction markets aggregate opinions backed by money, which tends to weight participants by conviction and resources. Both are useful — the price is a live consensus with skin in the game, while polls are a snapshot of intent.
What happens at settlement?
When the event resolves, each 'yes' contract pays $1 and each 'no' pays $0. Exchanges use pre-published resolution sources — usually a named official body or data provider — to determine the outcome.
18+ · T&Cs apply · Terms
Certain limitations apply. The offer is available to new users only, subject to the terms and conditions at kalshi.com/tc/500. 18+ only. Restrictions and eligibility requirements apply. Event contract trading involves significant risk and is not appropriate for everyone. Please carefully consider if it is appropriate for you in light of your personal financial circumstances. Kalshi products are not available in all jurisdictions. See kalshi.com/regulatory for more information.