A prediction market lets you buy and sell contracts that pay a fixed amount (usually $1) if an event happens and nothing if it doesn't, such as an election result, a Fed decision or a sports outcome. The contract's price, between $0 and $1, works as the market's estimate of the probability. In the US, Kalshi and Polymarket US operate as CFTC-regulated exchanges, and in June 2026 the CFTC proposed formal rules for the sector.
Prediction markets went from a niche curiosity to a multi-billion-dollar business in two years. Combined monthly volume on Kalshi and Polymarket reached roughly $44.8 billion in June 2026, according to industry figures reported by CNBC and others. Brokers are adding event contracts next to stocks and options. If you trade, you'll run into them. Here's how they work and where the traps are.
How an event contract works
Take a contract on "Will the Fed cut rates at its December meeting?"
- A YES share pays $1.00 if the Fed cuts, and $0 if it doesn't.
- A NO share pays the opposite.
- If YES trades at $0.62, the market is implying about a 62% chance of a cut.
If you buy YES at $0.62 and the Fed cuts, you receive $1.00, a $0.38 profit per contract. If it doesn't, you lose your $0.62. You can also sell before resolution: if the odds rise to 80% next week, your YES share is worth about $0.80.
That's the entire product: binary payoffs, priced as probabilities. There's no leverage in the traditional sense, but you can lose 100% of what you put into any position.
Kalshi vs Polymarket
| Kalshi | Polymarket | |
|---|---|---|
| Structure | CFTC-regulated designated contract market (US exchange) | Two versions: CFTC-regulated Polymarket US, and a larger offshore international platform |
| Settlement currency | US dollars | USD (US platform); stablecoins on the international platform |
| Access | US residents via app and brokers | US users on Polymarket US; the international platform says it blocks US users |
| Typical markets | Economics, rates, politics, weather, sports | Politics, crypto, world events, sports |
Several brokerages now offer event contracts inside their normal apps, so you may see them next to your stock positions.
Score the Setup Before You Take It
TRADZY's Void Engine rates any setup 0–100 across 12+ variables: structure, trend alignment, volume, momentum and key levels.
Score a Setup Free →What the 2026 rules say
Regulation is the big 2026 story:
- June 10, 2026: the CFTC published a proposed rule defining which event contracts are allowed. Under the proposal, most sports event contracts would be permitted, while contracts vulnerable to manipulation (such as bets on individual player injuries or referee decisions) and contracts on military conflict, terrorism or assassinations would be banned.
- March 2026: Kalshi and Polymarket introduced measures to curb insider trading, in line with CFTC guidance.
- States push back: several states, including New York, Illinois and Wisconsin, argue that some event contracts, especially sports, are gambling and should be regulated at state level. Court cases are ongoing.
The final rules may differ from the proposal. Check the current status before you trade. Coverage from CNBC and the Congressional Research Service is a good starting point.
How prices are set, and why they can be wrong
Prices move with supply and demand, like any order book. That makes prediction markets useful as a real-time sentiment gauge, but not perfect:
- Thin markets can be moved by one large trader.
- The favourite-longshot bias: very unlikely outcomes are often overpriced, because people like lottery tickets.
- Fees and spreads mean the YES and NO prices add up to more than $1. The gap is your cost.
- Resolution rules matter. Read exactly how the market resolves, what source it uses and what happens in edge cases.
- Insider information is a real concern, which is why regulators have focused on it.
Prediction markets vs options
Traders often ask how event contracts compare with options on the same outcome:
| Event contract | Option | |
|---|---|---|
| Payoff | Fixed: $1 or $0 | Variable: depends on how far price moves |
| Question answered | Will X happen? | How much will price move, and in which direction? |
| Pricing input | Probability of the event | Price, strike, time, volatility (the Greeks) |
| Hedging a macro event | Direct | Indirect, via index or rate options |
A Fed-cut contract gives you exposure to the decision. SPX options give you exposure to the market's reaction, which can go either way even if you called the decision right.
Are prediction markets trading or gambling?
Legally, it depends on the regulator and the contract. Practically, the same rules apply as anywhere else:
- Edge comes from being better calibrated than the price, not from having an opinion.
- Size small. Binary outcomes mean full losses happen often. Risk only a small, fixed amount per contract.
- Track your calibration. Log your estimated probability and the price paid for every position. Over time you learn whether you're actually better than the market or just confident.
That habit applies to every market you trade. TRADZY's TradLog lets you tag any trade with your pre-trade conviction, so you can see whether your "high-confidence" calls really perform better.
FAQ
Are prediction markets legal in the US?
Kalshi and Polymarket US operate as CFTC-regulated exchanges, and many brokers offer event contracts. Some states are challenging certain contracts, especially sports, as gambling, and the CFTC's June 2026 proposed rule is still being finalised.
How do prediction market prices work?
Each contract pays $1 if the event happens and $0 if it doesn't, so the price between $0 and $1 reflects the market's estimated probability. A price of $0.30 implies about a 30% chance.
What's the difference between Kalshi and Polymarket?
Kalshi is a US-regulated exchange settling in dollars. Polymarket runs a CFTC-regulated US platform and a larger international platform that settles in stablecoins and says it blocks US users.
Can you lose money on prediction markets?
Yes. If the event doesn't happen, a YES contract expires worthless and you lose the full amount you paid. Fees and spreads also add up.
Are prediction markets accurate?
They're often well calibrated on liquid, high-profile questions, but thin markets, long-shot bias and unclear resolution rules can make individual prices misleading.
Put This Into Practice
- Score your next setup 0–100 with the Void Engine before entering
- Log the trade and tag the setup in the TradLog
- Review weekly: keep what pays, cut what doesn't
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Educational content, not financial advice. Trading involves substantial risk of loss.