Event Contracts

A market on the next election, a market on the next interest rate decision, and a market on the next award winner look like three different products, yet all of them trade the same underlying instrument. That instrument is the event contract, which asks a yes-or-no question about the future and settles at one of two fixed values once the answer is known. The venues, participants, and information dynamics built around these contracts are covered in Prediction Markets. This guide stays with the instrument itself: what an event contract is, how it relates to the derivatives most people already know, and why its structure makes the price readable as a probability.

What is an event contract?

An event contract is a financial contract whose value depends on the outcome of a specified future event rather than on the price of an asset. It is written as a yes-or-no question with a resolution date and defined criteria for deciding the answer. One side of the contract settles with value if the answer is yes, the other side if the answer is no, and both settlement values are fixed before anyone trades. On most venues the correct side pays $1 per share and the incorrect side pays nothing; the CFTC's educational materials describe the product in these fixed-payoff terms and note that such contracts are typically structured as swaps.

Every event contract specifies the same handful of elements:

• The question. A single, unambiguous statement about the future, such as "Will X happen by date Y?"
• Resolution criteria. The rules and the data source that will decide the answer.
• A resolution date. When the answer is determined. Many contracts resolve as soon as the outcome is known rather than waiting for a calendar date.
• Two sides. Yes and No, tradable as separate shares or presented as one contract that can be bought on either side.
• Fixed settlement values. $1 for the side that matches the outcome, $0 for the other.

The vocabulary varies more than the structure does. US-regulated exchanges standardized on "event contract," a term the CFTC noted was not defined in the Commodity Exchange Act when it proposed rules for these products. One exchange markets the same design as forecast contracts, the industry press has long said event derivatives, and crypto-native venues mostly speak of outcome shares in a market. All of these name the same instrument.

The binary contract is also one member of a small family of designs. In the survey that defined the academic field, Wolfers and Zitzewitz distinguish three contract types by what they pay and, as a result, what their prices reveal:

Modern venues list winner-take-all contracts almost exclusively, and this guide follows that convention. When a numeric outcome matters, venues typically rebuild index-style exposure out of binary contracts, a construction described in the multi-outcome section below.

How are event contracts different from options and futures?

Event contracts belong to the same broad family as options and futures. All three are derivatives, meaning instruments whose value derives from something external to the contract itself. The differences are easiest to see side by side.

The closest relative is the cash-settled binary option, which shares the two-point payoff. What the event contract strips away is everything else options require: there is no strike to select, no volatility surface to reason about, and no exercise decision to make. The entire specification is the question, the resolution criteria, and the date. For a buyer, risk is defined at entry. The most a position can lose is what it cost, and the most a share can be worth is $1. A futures position behaves differently on both counts: it gains or loses continuously as the underlying moves and can require additional margin along the way, while an event contract bought outright is fully paid, with nothing further owed however the event resolves. Neutral institutional explainers such as Fidelity's present the instrument in these defined-risk terms while noting that the defined risk includes losing the entire amount paid.

The reading of the price differs just as much. An option premium blends direction, magnitude, time, and expected volatility into one number, and a futures price expresses a consensus about a future level. An event contract compresses everything into a single number between $0 and $1 that reads as the market's implied probability of one specific outcome. Much of what makes the instrument useful to observers as well as traders follows from that compression.

The two families also serve different purposes. Options and futures hedge price risk. Event contracts make it possible to hedge a discrete occurrence, such as whether a rate cut happens or whether a storm reaches a threshold, rather than only its downstream price effects; brokerage education for these products often leads with exactly that use (Interactive Brokers' lessons frame forecast contracts as tools for hedging economic and climate risks). Beyond the derivatives family, the instrument invites comparison with sportsbook propositions, and that contrast has its own guide, Markets vs Sportsbooks.

How do Yes and No shares work?

Every event contract market carries two instruments, one for each answer to the question. Venues present them differently: some list Yes shares and No shares that can each be bought and sold, while others display a single contract with a buy side and a sell side. The economics are identical in either presentation, and this section uses the share framing because it makes the mechanics easiest to follow.

The two sides are bound together by the settlement rule. Exactly one of them will pay $1, so one Yes share and one No share held together are worth exactly one dollar no matter how the event resolves:

$$V_{\text{Yes}} + V_{\text{No}} = \$1$$

The left side is the combined settlement value of a Yes share and a No share; the right side never changes. Because the pair always redeems for a dollar, the two prices trade as near mirror images. When Yes trades at 62¢, No trades near 38¢. Quoted prices can drift slightly from perfect complementarity because each side carries its own bid and ask; how those quotes form is covered in Order Books.

Share pairs do not exist in advance; they are created by matching. When one participant wants Yes at 62¢ and another wants No at 38¢, the venue matches the two orders, collects $1 in total, and issues one share to each side. That dollar is held as collateral, and it is exactly the dollar that funds settlement later. ForecastEx documents this paired-issuance model explicitly, and order-book venues generally operate on the same principle. Pairs are retired the same way in reverse when positions on both sides close against each other.

Buying No and selling Yes are the same position expressed from opposite directions, an equivalence that follows from the pairing and confuses many newcomers. A No share bought at 38¢ produces the same settlement outcomes as a Yes share sold at 62¢, which is why venue interfaces can offer either phrasing for the same trade. It also follows that no position needs to be held to the end. Shares can be sold at the going price whenever the market is open, which is how traders realize gains or cut losses before resolution; Polymarket's help center answers this as a standalone question.

What does settlement at $1 or $0 mean for pricing?

The fixed endpoints pin the entire price range. A share that can only ever be redeemed for $1 or $0 has no reason to trade outside those bounds, so every event contract price lives between them, and where it sits within the range carries the information.

For a share that pays $1 when the event occurs, the arithmetic of expectation is short. If the event has probability p:

$$\text{expected settlement value} = p \times \$1 + (1 - p) \times \$0 = p$$

The expected value of a Yes share is the probability itself, denominated in dollars. A trader who puts the probability at 40% values the share at about 40¢, and the market price emerges from many such valuations meeting in the order book. This is why a price of 34¢ is conventionally read as an implied probability of roughly 34%; Polymarket's own explainer teaches the same reading with a 20¢ share standing for a 20% chance. How faithfully prices track true probabilities in practice, and where the mapping systematically bends, is the subject of Prices and Probabilities.

A worked example makes the settlement mechanics concrete. Suppose a contract trades at 34¢ and a trader buys 100 Yes shares for $34. If the event occurs, the position settles at $100, a gain of $66. If it does not, the position settles at $0, a loss of the $34 paid and nothing more. The No side mirrors it. For $66, a trader buys 100 No shares, which settle at $100 for a gain of $34 if the event fails to occur, and at $0 if it happens. Both the maximum gain and the maximum loss are known at entry, which is the property that distinguishes the instrument from margined products.

Between entry and resolution, the price moves continuously as information arrives, and a position's value moves with it. The endpoint, however, is discontinuous. At resolution, every share goes to exactly $1 or exactly $0, regardless of how close to either end the market was trading. A share bought at 80¢ can finish worthless, and one bought at 15¢ can redeem for the full dollar. This all-or-nothing terminal step is why positions held near resolution tend to behave sharply, and why the low-priced side of a market offers large multiples precisely because it resolves in its holder's favor less often.

What is the difference between binary and multi-outcome markets?

The simplest event contract structure is a single binary market with one question and one Yes/No pair. Questions that are naturally two-sided, such as whether an economic decision happens by a date, need nothing more.

Many real questions have more than two possible answers: who wins a nomination, which film takes an award, which team lifts a trophy. Venues handle these by decomposing the question into a set of mutually exclusive binary markets, one per outcome, grouped together on a single event page. Each outcome carries its own Yes/No pair, exactly one outcome resolves Yes, and every other market in the group resolves No.

Because the outcomes partition the possibilities, the Yes prices across a complete group tend to sum close to $1, which is to say close to 100%. Each price reads as that outcome's implied probability, and comparing prices within the group shows the relative standing of the field at a glance. Small deviations from an exact $1 total reflect spreads and trading frictions rather than a logical inconsistency, and they tend to shrink in actively traded markets.

Venues package the grouping differently. Kalshi organizes its catalog as a hierarchy in which a series contains events and an event contains markets, documented in its own data-model glossary. Polymarket implements mutually exclusive groups as what it calls negative-risk markets, with a documented conversion property under which a full set of No positions across all other outcomes can be converted into a Yes position on the remaining one. The conversion is the group structure expressed as a trade, since being against every other candidate is logically the same as being for the last. The packaging differs across venue families more than the instrument does; Venue Types maps those differences.

The same decomposition extends to numeric questions. Where an inflation print, a temperature, or a price level will land is not a yes-or-no matter, so venues list a set of bracket markets, each one a binary contract on whether the number falls in a given band. Read together, the bracket prices trace the market's implied distribution over the number, recovering in binary form what the index-style design in the taxonomy above targets directly.

Where did event contracts come from?

Trading on event outcomes is far older than the standardized contract. Rhode and Strumpf's economic history, "Historical Presidential Betting Markets", documents large, well-organized election markets operating on and around Wall Street from 1868 to 1940, with activity that at times exceeded trading in stocks, and prices that forecast outcomes well in the era before scientific polling. Those markets traded informal instruments, but the core design, a fixed sum changing hands on a verifiable public outcome, is recognizably the same.

The modern, formalized version arrived as a research instrument. The Iowa Electronic Markets, launched by the University of Iowa in 1988, listed small-denomination winner-take-all contracts on elections and operated for research and teaching under no-action relief from the CFTC. The IEM established the template that contemporary venues still follow: a binary contract, a defined resolution source, and settlement at a fixed value per share.

Commercial exchanges took up the design in the following decades. MarketsWiki's account of event derivatives traces early regulated attempts, including HedgeStreet's launch as a regulated retail venue in 2004 and event-based listings on established options exchanges, most of which struggled to attract liquidity, and dates the industry's adoption of the "event derivatives" label to a futures-industry conference in 2005. The CFTC's own telling runs the arc from the IEM through the first regulated binary-options exchange to the Dodd-Frank Act of 2010, which brought event contracts into the swaps framework.

For most of that history the instrument was a curiosity. In a rulemaking record on prediction markets, the CFTC noted that exchanges certified roughly five event contracts per year between 2006 and 2020, and roughly 1,600 in 2025 alone. The design barely changed across that period; what changed was the range of questions the market structure could support and the number of venues listing them. That story, from the early platforms through the modern exchanges, belongs to History of Prediction Markets.

Related guides

Event contracts are the unit; these guides cover the system built around them.