Last updated: February 2026
Prediction markets let you trade on the probability of real-world events, using prices as forecasts rather than opinions or fixed odds.
Prediction markets are financial markets where people trade contracts based on the outcome of future events. Prices reflect the market’s collective estimate of how likely something is to happen.
Instead of trading shares, commodities, or currencies directly, you trade on outcomes such as interest rate decisions, election results, economic data releases, or major sporting events. This guide focuses on prediction markets used for finance, macro, and major events, not casual betting.
How prediction markets actually work (in 30 seconds)
- You risk the price you pay per contract.
- A 65¢ price implies a 65% implied probability.
- You can buy (YES) or sell (YES) to express the opposite view.
- Position size is contracts × price, not leverage.
- At settlement, contracts typically resolve to $1 (win) or $0 (lose).
If you’re new to trading, you may want to start with how online trading works, then compare platforms on our brokers hub.
What are prediction markets?
A prediction market is a marketplace where contracts pay out based on whether a specific event happens or not.
Each contract is tied to a clearly defined outcome. If the event occurs, the contract settles at a fixed value. If it does not, the contract typically settles at $0.
The price of each contract represents the market’s estimated probability of that outcome, based on the collective actions of all participants.
How prediction markets work in practice
Prediction markets are built around event contracts with defined outcomes and settlement rules.
Event contracts
An event contract is usually framed as a yes-or-no question, such as “Will the Federal Reserve cut interest rates at its next meeting?” Platforms like Kalshi list multiple Fed-related contracts for upcoming meetings.
Pricing and probability
Contracts are typically priced between $0.00 and $1.00 (or 0 to 100 cents). A price of 65 cents implies the market believes there is a 65 percent chance the event will occur.
What this means when you place a trade
Here’s how this looks with real numbers.
If you buy a contract at 65 cents, you are risking 65 cents per contract to potentially receive $1 if the outcome is correct. Your maximum loss on that contract is what you paid.
Example A: You buy 100 YES contracts at $0.65.
- Cost: $65
- If YES happens: value = $100, profit = $35
- If NO happens: value = $0, loss = $65
Example B: You buy 1,000 YES contracts at $0.12.
- Cost: $120
- If YES happens: value = $1,000, profit = $880
- If NO happens: value = $0, loss = $120
Larger positions are created by buying more contracts, not by increasing leverage.
Example contract (what you’ll actually see)
Question: “Will the Fed cut rates at the March 2026 meeting?”
Market price: YES 42¢, NO 58¢
Interpretation: The market is implying roughly a 42% chance of a cut.
Buying vs selling (how “shorting” works)
You can usually take either side of a market.
- Buy YES if you think the outcome is more likely than the current price implies.
- Sell YES if you think the outcome is less likely than the current price implies.
For example, if YES trades at $0.65:
- Buying YES risks $0.65 to make $0.35.
- Selling YES risks $0.35 to make $0.65.
In plain terms, selling YES at 65 cents is equivalent to saying “I think NO is more likely than 35%.”
Prediction markets vs polls vs bookmakers
| Feature | Prediction markets | Polls | Bookmakers |
|---|---|---|---|
| How prices are set | By market trading | By survey methodology | By bookmaker risk management |
| Can you exit early? | Usually, if liquid | No | Sometimes |
| Incentive to be correct | Direct financial incentive | Reputational | Indirect |
| Can you express uncertainty? | Yes, by trading probability (not a single “pick”) | Indirect, depends on question design | No, odds reflect the house’s market |
| Typical strengths | Fast, tradable probabilities | Demographic insight | Deep sports liquidity |
| Typical weaknesses | Thin markets, regulatory risk | Sampling error | Margin and limits |
What can you trade on prediction markets?
Prediction markets cover any event with a clear, verifiable outcome. In 2026, the most active categories are finance, politics, crypto, and sports, particularly on platforms like Polymarket.
Finance and macro
- Federal Reserve rate decisions
- Inflation releases
- Recession probabilities
- Debt ceiling and government shutdown outcomes
Politics and elections
- US elections and party control
- Major legislation outcomes
- Leadership changes
Crypto
- Bitcoin price thresholds
- Regulatory milestones
- Protocol and ecosystem events
Sports
- Championship winners
- Season outcomes
- Major tournaments
Examples of active prediction markets in 2026
- Will the Fed cut rates at the next FOMC meeting?
- How many rate cuts will occur this year?
- Will US inflation exceed a specific threshold?
- Will Bitcoin reach a new all-time high?
- Who will win major US sports championships?
Why finance traders like prediction markets
Prediction markets allow traders to express macro views directly as probabilities, without modelling volatility, managing Greeks, or relying on large price moves.
For event-driven themes, they can be simpler and more transparent than many traditional instruments.
Regulated prediction markets (US focus)
In the United States, regulated prediction markets operate through event contract exchanges such as Kalshi, which is overseen by the Commodity Futures Trading Commission.
Some brokers provide access to these regulated event contracts through futures platforms. For example, Plus500 offers US prediction markets via Plus500 Futures using Kalshi-regulated event contracts.
Learn more about regulated access via Plus500.
Takeaway: For US users, this distinction matters, regulated access determines who you can trade with and what markets are available.
Why prediction markets matter more now
- 2020–2022: Major global shocks increased demand for forecasting tools.
- 2023–2024: Crypto platforms brought prediction markets into the mainstream.
- 2025: Regulatory scrutiny intensified around event contracts.
- 2026: Broker-led access expanded, alongside ongoing state-level challenges.
Are prediction markets gambling?
That depends on jurisdiction.
Structurally, prediction markets resemble financial speculation more than traditional gambling. A useful comparison is UK spread betting, which is taxed as betting but involves trading financial markets.
The key difference is that prediction markets use market pricing, not bookmaker odds.
Risks and limitations of prediction markets
Liquidity risk
Major macro and election markets can be relatively liquid. Niche or obscure events often are not, making exits difficult without moving the price.
Rule of thumb: If you wouldn’t trust a headline to be settled cleanly, don’t trade the market.
Event definition risk
Ambiguously worded contracts can lead to disputes, especially around geopolitical events.
Regulatory risk
Rules can change quickly. State-level actions in early 2026 showed how access to prediction markets can be restricted with little notice.
Who should (and shouldn’t) use prediction markets?
Good fit for
- Macro and event-driven traders
- Commodity investors hedging policy risk
- Traders who prefer defined risk
Usually a poor fit for
- Short-term scalpers needing deep liquidity everywhere
- Traders drawn to ambiguous or sensational events
- Anyone uncomfortable with binary outcomes
Where can you trade prediction markets?
- Kalshi, regulated US event contracts
- Plus500 Futures, broker access to Kalshi markets
- Polymarket, global crypto-based markets
- Manifold Markets, experimental and community-driven markets
- Betfair Exchange, sports-focused exchange betting
If you want the practical next step, compare platforms on our brokers hub.
Next: Want to see how regulated prediction markets work in practice? Read our Plus500 Futures prediction markets guide.