How prediction markets work: contracts, prices & payouts
Last reviewed · Editorial policy
A plain guide to yes/no event contracts, how their prices are set & read, how Kalshi & Polymarket match trades, & what people trade on them.
The one-line version
A prediction market lets people trade on the answer to a yes/no question, such as whether a company will launch a product or GDP will rise. Kalshi calls the thing being traded an event contract, & says each market has two kinds: YES contracts & NO contracts.
The payout rule is simple. In Kalshi’s words, “each contract on Kalshi settles to $1 if your answer is right, and $0 otherwise”. Settlement is the point at which the question is answered & the contract pays out or expires worthless.
Kalshi says that by the market price of a contract it means “the price you’d need to pay to instantly get matched with another buyer”. Kalshi says its contract prices range from $0.01 to $0.99, so a contract never costs more than the $1 it can pay.
Who is on the other side
Kalshi says YES & NO contracts “always come in pairs”. When you place an order, it matches you with another user who wants the opposite contract on the same market. One of you receives YES, the other NO, & together you pay $1.
In Kalshi’s example, if you pay $0.60 for YES, you have matched with someone who paid $0.40 for NO. If the market resolves YES, you receive the full $1 & the other user loses their $0.40. If it resolves NO, you lose your $0.60, which goes to the other user.
Polymarket’s documentation describes a similar split. When a buyer of Yes at $0.60 matches a buyer of No at $0.40, 1 pUSD of collateral creates a “complete set”, & the Yes & No outcome tokens go to their respective buyers.
Neither platform says it sets the price itself. Polymarket says prices “emerge from supply and demand as users trade with each other” on a central limit order book, a list of all open buy & sell orders, & Kalshi says the price you pay is “determined entirely by users”.
Polymarket describes its system as hybrid. An operator matches compatible orders off the blockchain, & matched trades then settle on chain through smart contracts.
Reading the price
Kalshi’s help centre ties each price to a probability between 0% & 100%. Its example: if the market thinks a product launch has a 70% chance of happening, YES costs 70 cents & NO costs 30 cents, & Kalshi says a buyer of YES & a buyer of NO at those prices would together contribute $1.
Polymarket says every share is priced between $0.00 & $1.00, & that the price “directly represents the market’s belief in the probability of that outcome”. Kalshi says that if a question has a 40% chance of being answered YES, the expected value of a YES contract is 40¢.
The figure Polymarket displays is the midpoint between the best bid, the highest price a buyer is offering, & the best ask, the lowest price a seller will accept. The gap between them is the spread. If the spread is wider than $0.10, Polymarket shows the last traded price instead.
In Polymarket’s example, a best bid of $0.34 & a best ask of $0.40 give a displayed price of $0.37. A buyer still pays $0.40 & a seller still receives $0.34.
Kalshi makes the same point from the other direction. The YES & NO prices available to you should add up to more than $1, sometimes $1.01 & sometimes over $1.50. Kalshi calls the amount over $1 the spread & says low spreads generally mean lots of people are trading.
A price is a crowd estimate, not a certainty. Kalshi says its prices “reflect the probabilities that people believe in”.
Making or losing money before the end
A position does not have to be held until settlement. Polymarket says that when selling you receive the highest bid, & Kalshi says low spreads mean you can get out of a position quickly “without paying too much extra”.
Kalshi also says low spreads generally mean the price of a contract “isn’t going to swing around too much”.
The spread itself is a cost. Using Polymarket’s example prices, buying at $0.40 & selling straight away at $0.34 loses $0.06 per share even though the displayed price has not moved.
Polymarket describes two order types. A market order executes immediately at the best available price, while a limit order executes only at your chosen price or better, can fill in parts, & can be cancelled while unfilled. Polymarket says all its orders are technically limit orders.
Size matters too. Polymarket says its order book has no trading size limits, but that large orders “may move the price significantly”.
Regulated exchanges & their forerunners
On 4 November 2020 the Commodity Futures Trading Commission (CFTC) announced an Order of Designation granting KalshiEX LLC status as a designated contract market (DCM). The CFTC issued it under Section 5 of the Commodity Exchange Act & CFTC Regulation 38.3(a).
The CFTC said KalshiEX, a San Francisco company formed under Delaware law, had shown it could comply with the rules for DCMs. The order requires it to comply with the Commodity Exchange Act & all CFTC regulations applicable to DCMs.
Prediction markets were operating in the US long before that. On 18 June 1993 the CFTC’s Division of Trading & Markets granted no-action relief to the University of Iowa for the Iowa Electronic Markets, a non-profit electronic market run by faculty for academic research. The relief from the Commodity Exchange Act & CFTC rules covered submarkets on economic indicators & political elections.
Polymarket has followed a different path. According to the Pew Research Center, it faced legal trouble for allowing Americans to trade on its unregulated international platform, & introduced the CFTC-regulated Polymarket US in late 2025.
Why prices can be informative
Justin Wolfers & Eric Zitzewitz examined the question in a 2004 paper, “Prediction Markets”, in the Journal of Economic Perspectives. They studied how simple markets can pull scattered information into forecasts of uncertain future events.
Drawing on data from a range of settings, they found market-generated forecasts “typically fairly accurate” & said they outperform most moderately sophisticated benchmarks. Carefully designed contracts, they wrote, can reveal expectations about probabilities, means & medians, & about uncertainty around them.
They also noted limits. Markets that depend on another outcome can show beliefs about relationships between variables, but still face “the usual problem of disentangling correlation from causation”, & the authors discuss design issues & the areas where such markets are most likely to be useful.
Kalshi’s reasoning is that if traders think a price is wrong, they can buy & expect to profit, which should push prices towards the real odds. It adds that a trade expected to be profitable will not always be.
What people trade now
A Pew Research Center analysis, using data from The Block, found combined monthly global volume on Kalshi & Polymarket rose from $25.7bn in May 2026 to $53.0bn in July 2026. Pew calls them the two leading prediction markets.
Pew says sports is now the most traded topic on both platforms by a large margin. Pew’s table of monthly volume in millions puts July 2026 sports trading at 31395.7 on Kalshi & 10618.5 on Polymarket, against 169.2 & 726.8 for politics.
In June & July 2026, coinciding with the FIFA World Cup, sports trading topped $58bn on Kalshi & neared $22bn on Polymarket. Pew says combined volume dipped to $47bn in August.
For comparison, Pew says Americans wagered around $40bn on legal sportsbooks in the first quarter of 2026, about on par with combined prediction market sports volume over the same period.
Politics was the largest category on both platforms during the 2024 US presidential election. Since the start of 2026, Pew says, political volume has averaged around $2bn a month on Polymarket & stayed under $300m on Kalshi.
Before you trade
Kalshi says you can only trade after depositing money, can only lose money you have used to trade, & will never owe it a debt. It describes itself as fully cash-collateralised, meaning the cash in your account is the only guarantee.
The other side of that rule is that a contract settling at $0 loses everything paid for it. In Kalshi’s own example, the holder of a $0.60 YES contract loses all $0.60 if the market resolves NO.
Rules also vary by place. Pew notes that more than half of US states restrict betting on elections, & that some regulators have argued sports contracts amount to nationwide sports betting in violation of state & local gambling rules.
Kalshi says its contracts are simple but “still have all of the complexity associated with financial markets”, & Polymarket advises checking order book depth before trading in size.
Questions
What does a prediction market contract pay?
According to Kalshi, each contract settles to $1 if your answer to the yes/no question is right & $0 otherwise. The price paid beforehand is the most a buyer can lose on that contract.
Who sets prices on Kalshi & Polymarket?
Both say users do. Kalshi says the price is determined entirely by users trading on the exchange, & Polymarket says prices emerge from supply & demand on its order book.
What does a 70-cent price mean?
Kalshi treats price as the market’s probability, so a 70-cent YES implies roughly a 70% chance & pairs with a 30-cent NO. Prices reflect what traders believe, not a guaranteed outcome.
Is Kalshi regulated?
The CFTC announced on 4 November 2020 that it had designated KalshiEX LLC as a designated contract market under the Commodity Exchange Act.
How much is traded on prediction markets?
Pew Research Center found combined monthly volume on Kalshi & Polymarket reached $53.0bn in July 2026, up from $25.7bn in May 2026, & said the increase was mostly due to a large uptick in sports trading.
Sources
Sources checked 11 October 2026. Information only. 18+.
Discussion
Ask a question, add useful context or share a source. Keep it relevant & respectful.
Add a comment