what are prediction markets (2026)

Prediction markets are trading venues where people buy and sell contracts tied to the outcome of a future event, such as an election, a Federal Reserve rate decision, or whether a movie hits a box office target. The price of a contract moves with buying and selling, and that price doubles as a running estimate of the odds that the event will happen. A contract trading at $0.65 implies traders think there’s roughly a 65% chance the outcome occurs.

Unlike a poll, which asks people what they think will happen, a prediction market asks people to put money behind their belief. That financial stake is supposed to make the resulting price more accurate than a survey, because people who think the price is wrong can trade against it and profit.

How a prediction market contract works

Most prediction markets use binary, yes-or-no contracts. Take a contract like “Will the Fed cut rates in December?” It settles at $1 if the answer is yes and $0 if the answer is no. Everything in between is the market’s live guess.

• Event is defined. The question needs a clear, checkable resolution, often yes/no, so there’s no dispute about the outcome later.
• Contracts are listed. Each possible outcome gets its own tradable contract, priced between $0 and $1 (or 0 and 100 depending on the platform).
• Traders buy and sell. Buyers who think the event is more likely than the current price suggests buy contracts. Sellers who think it’s overpriced sell or short it.
• The price moves. Every trade shifts the price slightly, so the contract reflects the latest collective view as news breaks.
• The event resolves. Once the outcome is known, trading stops. Contracts on the correct outcome pay out $1 each; contracts on the wrong outcome expire worthless.

The platform running the market usually doesn’t take a side. It matches buyers with sellers and charges a transaction or trading fee, similar to how a stock exchange operates rather than how a sportsbook sets its own odds.

How prediction market prices differ from stock prices

A share of stock is a claim on a company’s future earnings, assets, and growth. Its value can rise indefinitely and the company can keep operating for decades. A prediction market contract has none of that. It’s worth exactly $1 or $0 once the underlying event resolves, and there is no dividend, no ownership stake, and no long-term growth story attached to it.

That makes prediction markets closer to short-term probability bets than to investments. Fidelity’s own explainer on the topic is blunt about this: event contract prices are market-based estimates, not forecasts or guarantees, and they can swing on sentiment or rumor just as easily as on hard data.

What kinds of events get traded

Prediction market contracts have covered:

• Elections and political appointments
• Federal Reserve interest rate decisions
• Economic data releases, like monthly jobs numbers or inflation prints
• Sports outcomes and championships
• Entertainment events, including awards shows and box office results
• Corporate and business milestones, such as whether a company hits a product launch date

The common thread is a resolvable, objective outcome. A market on “will it rain in Chicago on July 4th” works because a weather station can confirm it. A market on something vague or subjective doesn’t, because there’s no clean way to settle it.

Where the idea came from

Organized betting on outcomes is old. Historians have traced political betting markets on Wall Street back to 1884, and wagers on papal succession date to at least 1503. The modern academic case for prediction markets leans on economist Friedrich Hayek’s 1945 essay “The Use of Knowledge in Society,” which argued that prices aggregate scattered information more efficiently than any central planner could.

The University of Iowa built one of the first electronic prediction markets, the Iowa Electronic Markets, ahead of the 1988 presidential election, and it’s still used in academic research today. Corporations have used the same logic internally: Eli Lilly ran internal markets to help forecast which drugs in its pipeline were likely to clear clinical trials, and Google used internal markets to forecast product launch dates and other business outcomes in the mid-2000s.

Are prediction markets legal in the US?

This is the part that trips people up, because the legal status depends on structure and regulator, not just on the word “prediction.”

• CFTC-regulated exchanges. Platforms like Kalshi register as designated contract markets with the Commodity Futures Trading Commission and list “event contracts” the same way a futures exchange lists corn or oil contracts. This is the path HedgeStreet used when it became the first CFTC-approved prediction market in 2004 under the Commodity Futures Modernization Act of 2000.
• Academic and nonprofit markets. Iowa Electronic Markets and similar research platforms operate under specific exemptions and cap the amount people can trade.
• Offshore or unregulated platforms. Some prediction markets operate outside US oversight, and their legal status for US residents can be murky or outright restricted.

Many state regulators and gaming commissions view certain event contracts, especially those tied to sports, as a form of gambling, and that view has led to legal disputes over whether sports-related contracts belong under CFTC oversight or state gambling law. That fight is still playing out state by state, so the rules for any given platform can shift.

The risks worth knowing before you trade

• You can lose your full stake. A losing contract settles at $0, not a partial loss. There’s no dividend or recovery period to wait out.
• Prices can be thin and jumpy. Less popular contracts may have few traders, so prices can swing sharply on a single large order.
• Resolution disputes happen. If an event’s outcome is ambiguous or contested, settlement can be delayed or argued over.
• Regulation is still moving. Rules on which contracts are allowed, and for whom, have changed multiple times in the last two decades and are likely to keep changing.

How to think about a contract’s price

Treat the price as the market’s current best guess, not a guarantee. A contract at $0.80 means enough traders are willing to back that outcome at that price to keep it there, not that the outcome is 80% certain in any scientific sense. New information, a poll, an earnings report, an injury report, can move that price within minutes. If you’re checking a prediction market to gauge sentiment on an upcoming event, look at how the price has moved over time rather than the single current number, since the trend often carries more information than the snapshot.