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What is a prediction market?
A prediction market is a market where people trade contracts that pay out depending on whether a future event happens, such as an election result or an interest-rate decision. A yes contract typically pays a fixed amount if the event occurs and nothing if it does not.
What it means for you
If the event goes the other way, you lose everything you paid for the contract. In the US, the CFTC regulates event contracts and warns that trading with unregistered platforms operating outside the US can leave you with little or no protection.
How it works
In the US, the CFTC describes event contracts as usually structured as swaps whose value derives from the outcome of an event. Most are yes-or-no questions with a fixed payout, usually one dollar per contract, and an expiry. Until expiry the contract trades between zero and the payout, and in a regulated market with transparent pricing its price reflects traders' perceived probability of the outcome. At settlement, those who picked correctly receive the payout, and their profit is the difference between the payout and what they paid; the other side receives nothing.
An example
Say a yes contract on an event trades at $0.30, implying the market sees about a 30% chance. You buy 100 for $30. If the event happens, you receive $100 at settlement, a $70 profit before fees. If it does not, the contracts expire worthless and the $30 is gone.
Source: CFTC: Prediction markets and event contracts · checked 4 October 2026
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