Understanding Prediction Markets

What Are Prediction Markets?

A prediction market is a platform where people can trade contracts on the outcome of future events. By buying and selling shares in various outcomes, participants collectively forecast the likelihood of events such as political elections, sports results, entertainment awards, economic indicators, and more.

Market Prices = Probabilities: The price of shares in a prediction market represents the current probability of an event happening. For example, if shares of an event are trading at 20 cents, it indicates a 20% chance of that event occurring. If the event happens, each share becomes worth $1, yielding a profit.

How Prediction Markets Work

Making Predictions

If you believe the actual probability of an event is higher than the market price suggests, you can buy shares. For instance, if you think a candidate has a better than 20% chance of winning, you would buy shares at 20 cents. When the event resolves in your favor, you profit.

Major Prediction Market Platforms