What Are Prediction Markets? A Complete Guide for US Traders
Prediction markets are platforms where users buy and sell contracts tied to the outcomes of real-world events. Each contract is binary — it resolves as either YES (worth $1) or NO (worth $0) depending on whether the event occurs.
The price of a contract reflects the market's collective probability estimate. A contract trading at 67 cents implies a 67% chance of the event occurring. If you buy YES at 67 cents and the event happens, you receive $1 — a profit of 33 cents. If it does not happen, you lose your 67 cents.
History
Prediction markets have existed for centuries. Papal election betting dates to 1503. By the 18th century, London coffeehouses hosted election wagering markets. In the United States, presidential election markets were widely covered by newspapers including the New York Times well into the 1940s.
Modern prediction markets began with the Iowa Electronic Markets in 1988, an academic experiment at the University of Iowa that demonstrated market-based forecasts could rival traditional polls. Today, platforms like Kalshi and Polymarket have brought prediction markets to millions of retail traders.
How They Work
When you open a position on a prediction market:
- You buy a YES or NO contract at the current market price
- The price moves as other traders buy and sell
- You can exit before resolution by selling your position at the current price
- If you hold to resolution, the contract settles at $1 (correct) or $0 (incorrect)
The key insight is that price equals probability. Unlike traditional sports betting where the bookmaker sets odds with a margin built in, prediction market prices are driven purely by supply and demand. This often produces more accurate probability estimates than bookmaker odds.
What You Can Trade
US prediction market platforms currently offer contracts on:
- Sports outcomes (game winners, playoff results)
- Politics (elections, legislation, appointments)
- Macroeconomics (Fed rate decisions, CPI, GDP)
- Crypto (Bitcoin price levels, ETF approvals)
- Climate and weather events
- Entertainment (award show results)
Are They Legal in the US?
Yes. Platforms like Kalshi are regulated by the Commodity Futures Trading Commission (CFTC) as Designated Contract Markets — the same regulatory framework that governs futures exchanges. Event contracts are classified as derivatives under federal commodities law, not gambling under state law. This distinction has been contested by several states, with the question of federal versus state jurisdiction expected to reach the Supreme Court between 2027 and 2028.
How to Get Started
- Choose a regulated platform (see our rankings)
- Create an account and verify your identity
- Deposit funds — minimum as low as $1 on Kalshi
- Browse available markets and find a contract you have a view on
- Buy YES or NO at the current price
- Monitor your position and exit or hold to resolution