Trading Prediction Markets
How prediction markets work on Kalshi and Polymarket, from buying a contract to calculating profit or loss when you sell or collect a payout.
Following a championship or a central-bank decision means weighing new information about what might happen. Prediction markets give those judgments a price that can change as people trade. That price provides a forecast to compare with your own assessment, whether you plan to trade or simply follow the event.
For someone considering a trade, the purchase price affects how much a correct prediction can earn. A contract on the more likely outcome can leave little profit if it succeeds and lose its full purchase cost if it fails. Understanding what the contract promises to pay helps explain both the forecast shown on a market page and the money at stake.
What is a prediction market?
A prediction market lets people buy and sell contracts on whether a specified event will happen. The contract's rules determine what it pays when the result is known. Before then, its price gives an estimate of the event's probability. Kalshi and Polymarket are two venues where these contracts trade.
The contracts are known as event contracts. In a common Yes/No design, Yes pays $1 if the condition is met and $0 otherwise. No pays the reverse. Other designs allow several choices or ranges of outcomes.
For example, suppose a market asks whether the Federal Reserve will cut its policy rate at a particular meeting. A Yes price of 34 cents is usually read as about a 34% chance of a cut. Someone following the decision can use the percentage as a forecast without buying anything.
Yes costs 34 cents in this hypothetical market and pays $1 if the Federal Reserve cuts its policy rate, or $0 if it does not. The price is 34% of the possible dollar payment, so it is read as roughly a 34% chance of a cut.
Prediction markets are also called information markets or forecasting markets. Their questions must have answers that can be checked. An opinion about a company's future becomes tradable when it is tied to something observable, such as whether the company ships a named product by a deadline.
How do prediction markets work?
On exchanges such as Kalshi and Polymarket, buyers and sellers submit orders stating a price and quantity. A trade happens when orders match, giving the buyer a contract that typically pays $1 for the correct Yes/No outcome and $0 for the other. The price in cents is read as an estimated percentage chance, and it changes as traders revise what they will pay or accept.
Consider a hypothetical market on whether the Federal Reserve will cut its policy rate at a specified meeting:
- The rules define the question. They identify the meeting, the rate being measured, what counts as a reduction, and the official announcement that supplies the answer.
- Orders meet in an order book. This is the list of prices and quantities available to trade. A buyer can accept a seller's price or submit a buying order and wait for someone to match it.
- The holder sells or waits. Selling an existing contract transfers the right to its final payment to the buyer. Whoever holds it through settlement receives what the result calls for under the rules.
Suppose a weaker employment report makes a rate cut seem more likely. Buyers may offer more for Yes, and sellers may withdraw orders at lower prices. As cheaper contracts are bought or withdrawn, the price available to the next buyer rises. Someone who already owns Yes may then be able to sell it for more than they paid.
In this hypothetical rate-cut market, buyers take all the contracts offered at 34 and 35 cents after a weaker employment report, and a seller withdraws the 36-cent offer. The unchanged 37-cent offer becomes the lowest price available to the next buyer.
How does Kalshi work?
Kalshi is an exchange where members buy and sell contracts on event outcomes. For a standard Yes/No contract, the correct side settles for $1 and the other side for $0. A Yes price of 60 cents in a hypothetical championship market would imply roughly a 60% chance of the selected team winning.
Buying Yes gives you a claim on the payment if the team wins under the rules. Kalshi treats buying Yes and selling No as equivalent ways to open that position, so opening with a Yes purchase at 60 cents or a No sale at 40 cents has the same result. Selling No that you already own instead reduces your existing No position.
In this hypothetical Kalshi championship market, a Yes purchase at 60 cents and a No sale at 40 cents both open a Yes position costing 60 cents. The position pays $1 if the team wins and $0 if it loses, leaving a 40-cent profit or a 60-cent loss before fees.
Kalshi matches orders between its members, and the prices they accept set the terms of each trade. A holder can sell before settlement while trading is open if a buyer accepts the price. The exchange earns transaction fees, which count toward the cost of trading.
For positions held to the end, Kalshi's markets team checks the official result and credits any payment to the holder's cash balance.
How does Polymarket work?
Polymarket lets people buy and sell shares in a question's outcomes through a crypto-based exchange. These shares are outcome tokens, which record a claim on a blockchain and are held in an account wallet. In a standard Yes/No resolution, the correct side redeems for $1 per share and the other side for $0.
Suppose a market asks whether Bitcoin will finish above $100,000 at a specified time. A Yes share priced at 40 cents implies roughly a 40% chance. The rules name the price source and observation time, so Bitcoin rising above the threshold earlier and falling back below it by that time would leave Yes at zero.
After trading above $100,000, Bitcoin is back at $98,600 when this hypothetical contract's observation time arrives. Yes pays $0 because the rules require a price above $100,000 at that time.
One Yes share and one No share on the same question form a complete set with a combined settlement value of $1. That dollar is held as collateral to fund redemption, even as the shares change hands at different prices. The prices available to buy Yes and No need not add to exactly $1 because each has separate buying and selling prices.
Shares trade through an order book, which lists prices and quantities available from other traders. A buyer can later sell shares while trading remains open. Any transaction fees count toward the cost when calculating the position's profit or loss.
Many markets use UMA, an oracle that supplies the outside result for settlement. Its resolution process accepts a proposed outcome unless it is disputed. Some markets use a specified price-data source directly. Once the result is confirmed, holders can redeem their shares for the assigned value.
Polymarket uses event to mean a group of related markets. A championship event might group a separate Yes/No market for each possible winner. In a complete group with exactly one champion, one market resolves Yes and the rest resolve No.
How do Kalshi and Polymarket payouts work?
A “payout” is the money a position pays at settlement. For standard $1 Yes/No contracts on Kalshi and Polymarket, the correct side receives $1 per contract and the other side receives $0. Profit is what remains after subtracting the purchase cost and any fees.
Suppose Yes on a rate cut costs 34 cents and No costs 66 cents. Each row shows the result of buying 100 contracts at those hypothetical prices, excluding fees.
| Position | Purchase cost | Final answer | Settlement payment | Profit or loss |
|---|---|---|---|---|
| Buy 100 Yes at 34 cents | $34 | Yes | $100 | $66 profit |
| Buy 100 Yes at 34 cents | $34 | No | $0 | $34 loss |
| Buy 100 No at 66 cents | $66 | No | $100 | $34 profit |
| Buy 100 No at 66 cents | $66 | Yes | $0 | $66 loss |
Two people holding 100 Yes contracts can receive the same $100 at settlement yet make different profits. Before fees, the person who paid $34 earns $66, while someone who paid $80 earns $20. If the first person's total fees were a hypothetical $2, their net profit would be $64.
Each bar divides a hypothetical $100 settlement payment for 100 Yes contracts into purchase cost and profit. Buying at 34 cents per contract leaves $66 in profit before fees, compared with $20 for a buyer who paid 80 cents.
The payment arrives through the venue's settlement process, which may finish after the event itself. Withdrawing funds is a separate action that moves available money out of the account or wallet.
Can you lose money on Kalshi?
Yes. For fully paid event contracts bought without borrowing, the maximum trading loss is the purchase cost plus fees.
A high-probability contract can put more money at risk per contract. At 90 cents, a Yes buyer risks 90 cents to earn 10 cents before fees. Buying 1,000 contracts risks $900 for a possible $100 profit. One loss of that size consumes the gross profit from nine successful positions bought at the same price and quantity.
Across ten hypothetical positions of 1,000 Yes contracts bought at 90 cents each, nine successful positions earn $100 apiece and one loses $900. The nine gains total $900, so all ten positions together break even before fees.
Can you cash out on Kalshi and Polymarket?
Yes. Kalshi and Polymarket let a holder “cash out” by selling contracts while trading is open and buyers are available at an acceptable price. The sale realizes a profit or loss without waiting for the event's final answer.
Selling the whole position ends the seller's exposure to the event. Their profit or loss is fixed by the completed trades, even if the event later takes a different turn. Selling just part of a position leaves the remaining contracts exposed to the outcome.
A displayed midpoint sits halfway between the best buying and selling prices. Suppose the highest buying price, called the bid, is 58 cents, and the lowest selling price, called the ask, is 62 cents. Their midpoint is 60 cents. An immediate seller receives 58 cents per contract if there are buyers for the whole quantity at that bid. Someone who bought 100 contracts for $34 would receive $58 and realize a $24 profit before fees.
The 60-cent midpoint falls between the best buying offer at 58 cents and selling offer at 62 cents in this hypothetical order book. Selling all 100 contracts at the available 58-cent bid brings in $58, leaving a $24 profit before fees on the $34 purchase.
If the 58-cent bid is for only 20 contracts, it can absorb only that part of a 100-contract sale. The rest needs other buyers, possibly at lower prices. A limit order sets a minimum acceptable sale price, but it may fill only partly or remain open.
In this hypothetical order book, 20 contracts sell at 58 cents each, 30 at 57 cents, and 50 at 55 cents. The 100-contract sale brings in $56.20, compared with $58 if all 100 could sell at the highest bid of 58 cents.
The quantity available near a price affects how easily a position can be sold. This is part of a market's liquidity. A sportsbook's cash out offer comes from the operator, which decides what it will pay for an early exit.
Why do prediction market prices represent probabilities?
A contract paying $1 for Yes and $0 for No has an expected payment equal to its chance of Yes expressed in dollars. Traders who value that payment above or below the available price have a reason to buy or sell. Their trades can bring the price close to an average of their beliefs, though how much risk they will take affects that relationship.
Across 100 comparable events, each with a 34% chance of Yes, the expected total payment from one Yes contract per event is $34. This probability-weighted average of 34 cents per contract is its expected value.
Suppose your research puts the chance of a rate cut at 45%, while a Yes contract costs 34 cents. You value the possible payment at 45 cents, leaving an expected profit of 11 cents per contract before costs. No remains more likely, at 55%, yet the expected payment exceeds the purchase price. An individual contract still settles at $1 or $0.
If you put the chance of a rate cut at 45%, the expected payment from a $1 Yes contract is 45 cents. Paying 34 cents leaves an expected profit of 11 cents before costs, even though you consider no cut more likely, at 55%.
As traders act on different information, buying contracts they consider underpriced and selling those they consider overpriced, their knowledge enters the market price. The accuracy of those forecasts is measured against actual results.
For a trade, the relevant cost is the price a seller will accept for the quantity you want, plus fees. The price you can buy at may differ from the displayed percentage, which can come from a midpoint between buying and selling offers. Fees also raise the amount the position must earn to break even.
Who are you trading against on Kalshi and Polymarket?
Your order matches someone else's order on both Kalshi and Polymarket. The other trader might be an individual or a professional firm. A traditional sportsbook's “house” takes the other side itself, whereas these exchanges match traders who take that exposure.
Each trade pairs a maker, who posted an order, with a taker, who accepts its price. The same person can post one order and accept another, taking either role in different trades.
A seller may consider Yes unlikely or may simply want to reduce an existing position. Someone who estimates a 70% chance of a rate cut could still sell if too much of their money already depends on that result. A hedger uses a position to offset an outside risk, such as higher financing costs if interest rates rise.
A market maker regularly posts both buying and selling prices. For example, they might buy at 48 cents and sell at 50 cents, earning the difference if both trades complete before prices move against them. If they buy and the price then falls, the contracts they hold can lose value.
A market maker's hypothetical purchase of Yes at 48 cents earns 2 cents per contract before fees if a buyer accepts the 50-cent offer. If the price falls to 44 cents first, the unsold contracts are worth 4 cents less than their purchase price.
How do prediction markets make money?
Transaction fees provide revenue for exchanges. Kalshi earns fees on trades and says it has no financial stake in which outcome occurs. Its revenue comes from trading activity, whether a particular buyer ultimately gains or loses money.
Polymarket charges a fee for accepting an existing order in markets where fees apply. This is called a taker fee. Some of the money collected funds payments to traders who keep orders available for others to trade against.
A trader earns a profit when the money received from a sale or from settlement exceeds the purchase cost and fees. The money available for settlement comes from the funds backing the contracts. For a newly funded Yes/No pair, the two sides together contribute the dollar that will go to the correct side.
The Yes buyer's 34 cents and the No buyer's 66 cents make up the $1 held for settlement in this hypothetical rate-cut market. Whichever side is correct receives that dollar, recovering its own cost and earning the other buyer's contribution as profit before fees.
Later trades distribute gains and losses among more people. Someone who sold Yes for a profit keeps that gain even if the final holder loses at settlement. Fees reduce what traders retain across those transactions.
What can you trade on prediction markets?
Prediction markets list questions about sports, economics, politics, crypto prices, companies, and entertainment. A subject becomes a contract when the question has an observable answer and rules for checking it. The examples below are hypothetical.
| Subject | Example question | Detail that decides the answer |
|---|---|---|
| Sports | Will this team win the championship? | The named competition, official result, and treatment of cancellation |
| Crypto | Will Bitcoin be above $100,000 at the specified time? | The price source, observation time, and time zone |
| Interest rates | Will the Federal Reserve cut its policy rate at this meeting? | The named rate, meeting, and official announcement |
| Companies | Will this company deliver more than 100,000 vehicles this quarter? | The reporting period, definition of delivery, and accepted report |
| Elections | Will this candidate win the named office? | The office, election, and official result used for settlement |
| Entertainment | Will this film win the award? | The ceremony, award category, and announced winner |
If a contract asks whether deliveries will exceed 100,000, a reported total of exactly 100,000 falls short. If it asks for at least 100,000, that same total qualifies.
At a hypothetical total of exactly 100,000 vehicle deliveries, the contract asking for "more than 100,000" resolves No and the one asking for "at least 100,000" resolves Yes. The hollow dot excludes the threshold from the qualifying totals, while the filled dot includes it.
Related questions can overlap. Bitcoin can finish above both $100,000 and $110,000, so both threshold contracts can resolve Yes. A complete set of non-overlapping price ranges has only one matching range. Likewise, a championship with one winner differs from separate questions about which teams reach the playoffs, where several teams can qualify.
Arbitrage between Kalshi and Polymarket
Matching the conditions matters for arbitrage, which seeks a price difference that leaves a gain across every possible outcome. If two venues list the same binary condition with matching settlement rules, buying Yes on one and No on the other produces a combined $1 payment under either ordinary result. A combined purchase cost below $1 can leave a gain after costs, provided both trades can be completed at those prices.
Different deadlines or data sources can make two contracts resolve differently, even when their titles look similar. When comparing a pair's possible gains and losses, check whether the rules allow both purchased contracts to pay zero.
Buying Kalshi Yes at 45 cents and Polymarket No at 52 cents costs 97 cents in this hypothetical comparison. The pair pays $1 when both markets resolve the same way, leaving a 3-cent gain before spreads and fees, but pays $2 or $0 if different rules lead to different results.
Is Kalshi gambling or trading?
Kalshi is an exchange where members trade event contracts with one another at prices they agree on. A position can end in a sale to another trader or a payment determined by the contract's resolution rules. Buying solely to profit from an uncertain result fits the ordinary-language sense of “gambling”.
A contract can also offset a financial risk the buyer already faces. The CFTC's example of a citrus farmer buying a weather contract illustrates this use, called hedging. If a freeze damages the crop and triggers the contract's payment, the payment can offset some of the loss. Someone without that crop exposure who buys the same contract is taking weather risk in pursuit of a trading profit.
A freeze can damage the citrus harvest while also meeting the payment condition of the weather contract beside it. For the grower, that payment can reduce the financial loss from the crop.
Who takes the other side on an exchange?
An order-book exchange matches traders' orders, while a traditional sportsbook quotes its own odds and takes the other side. Betting exchanges also match participants.
| Feature | Order-book prediction market | Traditional sportsbook |
|---|---|---|
| Who accepts the other side | Another trader | The sportsbook itself |
| How the price is offered | Traders submit buying and selling orders | The operator quotes odds |
| How an early exit works | A sale or another permitted trade closes the position | The operator may offer early settlement at a quoted value |
| What decides the final result | The contract's resolution rules | The sportsbook's rules for the selection |
Does a prediction market contract give you ownership?
An event contract carries no ownership interest in the company or asset it concerns. It pays for a specified result, so a Yes contract on shipping a product by a deadline can settle at zero even if the company later succeeds. A shareholder continues to own part of that business.
A standard Yes/No contract settles for a fixed $1 or $0. A stock call option's value at expiration grows as the stock rises above its exercise price, and a futures position gains or loses with the asset's price. Event Contracts compares those payments and the rights or obligations behind them.
At expiration, the hypothetical Yes contract pays $0 at prices of $100 or less and a fixed $1 above $100. The call option is worth $0 up to its $100 exercise price and gains value as prices rise above it, while the futures buyer gains above the $100 agreed price and loses below it.
When do Kalshi and Polymarket pay out?
A position held to settlement pays after the contract's result has been confirmed. Kalshi credits the payment to the holder's cash balance, while Polymarket shares become redeemable for their assigned value. Market Resolution explains how each venue confirms the result and settles the contracts.
A final whistle or news headline can arrive before the evidence needed for settlement. A pending Kalshi payment can mean the markets team is still waiting for finalized source data or the determination time in the rules.
After the final whistle in this hypothetical championship, the official source publishes the result and Kalshi checks it. The settlement payment remains pending through those steps and becomes available when it is credited to the holder's cash balance.
How much can you trust a prediction market price?
A market price expresses a probability, and its reliability is measured across comparable events. A Federal Reserve working paper studied Kalshi's interest-rate forecasts from 2022 through 2025. At 150 days ahead, forecasts of the federal funds rate had errors similar to those of professional forecasters in the New York Fed's survey. Market Accuracy examines the evidence for different markets and how to compare their forecasts.
In a hypothetical group of 100 comparable events priced at 70%, roughly 70 Yes results and 30 No results would fit the forecast. The 30 No results are part of what a 70% probability allows.
Each of the 100 squares represents a hypothetical event priced at 70%. The 70 Yes results and 30 No results match the proportions expected from a calibrated 70% forecast.
How do you research a prediction market?
Research starts with the exact condition in a contract's rules, the evidence for and against it, and the price available to trade. The aim is to estimate how likely the contract is to pay and whether that chance justifies the purchase price and fees.
The rules identify the deadline and the source that will supply the answer. For a contract on a product shipping by a deadline, a launch announcement gives evidence about the company's plans. Confirmation of shipments from the source named in the resolution rules establishes whether the shipping condition has been met.
The researcher compares highlighted passages in a shipment report and a contract on the same product. They are checking whether the evidence satisfies the exact shipping condition set out in the rules.
For a rate-cut contract, relevant evidence might concern inflation, employment, and the central bank's announced decision criteria. For a championship, it might concern injuries, the remaining schedule, and the competition's format. Considering what could change the outcome helps identify the next useful piece of evidence, such as a jobs report or confirmation that an injured player will return.
When reading a report or an AI-generated event briefing reached through the Market Screener, compare the argument about the outcome with what its cited sources actually say.
Public discussion can point to news or claims that deserve a closer read. When Bluesky posts in the Social Intelligence dashboard react to a CEO interview, check the interview itself to see whether the statements change the chance of meeting the contract's condition.
Thursday's CEO interview coincides with 980 posts about the company in this hypothetical week, compared with 120 to 420 posts on the other days. The two posts give different accounts of the shipping plans, which a researcher can check against the interview.
The comparison with price uses orders available for the quantity being considered. A displayed percentage may differ from the price a buyer can obtain, and fees add to that cost. For a standard $1 Yes/No contract held to settlement, multiplying the possible payment by its estimated probability gives an expected value to compare with that total cost.
Which guides explain prediction markets in more detail?
Event Contracts
What a contract entitles its holder to and how its payment is defined.
Prices and Probabilities
How prices translate into implied chances and potential returns.
Order Books
How available offers and quantities affect the price of a trade.
Reading a Market
How to assess a contract alongside its rules, price, and trading activity.