# How prediction markets work, and what their odds really mean > A prediction market contract pays $1 if an event happens, so 30¢ means about 30%. How prices form, how Kalshi and Polymarket work, and when odds mislead. Sep 28, 2026 · Markets · Sikt Intelligence · https://www.siktintelligence.com/blog/how-prediction-markets-work A **prediction market** is a place where people trade contracts on yes-or-no questions about the future. A contract typically pays **$1 if the event happens and $0 if it does not**. So if a contract trades at **30 cents**, the market is putting the event at **roughly 30%**. That simple mechanic turns scattered opinions into a single, constantly updated number. Here is how it works, what the price really means, and when to be careful with it. ## How a prediction market works 1. **A question is listed** with clear rules: what counts as "yes", which source decides, and by when. For example: *Will the central bank cut rates at its next meeting?* 2. **Traders buy "Yes" or "No" contracts.** A Yes and a No for the same question together always pay out exactly $1. 3. **The price moves with supply and demand.** If more people want Yes, the Yes price rises. News, polls and data push it around. 4. **The question resolves.** Winning contracts pay $1; losing contracts pay nothing. Because traders profit from correcting a wrong price, the price tends to move toward what the best-informed people believe. ## What the odds really mean A price of 30¢ is best read as **"about 30%, according to the people willing to bet on it."** Three things make it an approximation rather than a pure probability: - **Fees and the bid–ask spread.** The price to buy and the price to sell differ, so the "true" market probability sits somewhere between them. - **The cost of waiting.** Money tied up in a contract that resolves in two years could earn interest elsewhere, which can push long-dated prices away from the true odds. - **Who is trading.** A market reflects the views, and the enthusiasm, of its participants. ## Kalshi and Polymarket: the two big ones The two best-known prediction markets work on the same principle but grew up differently: - **Kalshi** received approval from the US Commodity Futures Trading Commission (CFTC) in **November 2020** as a designated contract market, the first regulated US exchange built for event contracts ([CFTC](https://www.cftc.gov/PressRoom/PressReleases/8302-20)). It trades in dollars. - **Polymarket** began as a crypto-based market and operated outside the US from 2022. In **July 2025** it bought QCEX, a CFTC-licensed exchange, for $112 million to return to the US market, and in September 2025 the CFTC cleared the way for that return ([Axios](https://axios.com/2025/07/21/prediction-market-polymarket-us), [CoinDesk](https://www.coindesk.com/policy/2025/09/03/u-s-cftc-gives-go-ahead-for-polymarket-s-new-exchange-qcx)). Both list questions on politics, economics, technology, culture and more. Rules and availability vary by country. ## Are prediction markets accurate? Often, yes, but not uniformly. A large study of Kalshi covering over 300,000 contract prices from 2021 to 2025 found that prices are **informative and become more accurate as markets approach closing** ([Bürgi, Deng and Whelan, 2026](https://www.karlwhelan.com/Papers/Kalshi.pdf)). The same study found a clear **favorite-longshot bias**: cheap contracts on unlikely outcomes win far less often than their price implies. Buyers of contracts under 10¢ lost over 60% of their money on average. We explain why in [the favorite-longshot bias](/blog/favorite-longshot-bias). Research on who drives accuracy also finds that it tends to come from a relatively small number of skilled traders ([Yale Insights](https://insights.som.yale.edu/insights/wisdom-of-the-few-prediction-markets-are-driven-by-small-number-of-skilled-traders)). ## When to be careful with market odds - **Thin markets.** On quiet questions, a few trades can move the price a long way. - **Long shots.** Very low prices tend to overstate the odds. - **Long horizons.** Prices on events years away are distorted by the cost of waiting. - **Fine print.** A market resolves on its written rules, which can differ from the headline question. - **Breaking news.** Prices can overshoot and then correct. ## Markets and AI forecasts: two lenses A market price shows what traders are willing to bet. An evidence-based [AI forecast](/blog/what-is-an-ai-superforecaster) shows what checked facts and [base rates](/blog/base-rates-forecasting) support. They fail in different ways, which is why looking at both is more informative than looking at either. That is the idea behind the Sikt feed: every question shows Sikt's probability next to the market's, and **when the two disagree, the gap is worth a closer look**. See it in [the predictions feed](/#feed). The odds shown on our site are illustrative, and nothing here is investment advice. ## Key takeaways - A prediction market contract pays $1 if the event happens, so a 30¢ price means roughly 30%. - Prices move with supply and demand, and tend to move toward the best-informed view. - Kalshi has been CFTC-regulated since 2020; Polymarket returned to the US through a CFTC-licensed exchange in 2025. - Market odds are informative but biased at the extremes: long shots tend to be overpriced. - Read market prices alongside evidence-based forecasts, not instead of them. ## FAQ ### How do prediction market odds work? Each contract pays $1 if the event happens. Its price in cents is roughly the market's probability: a 65¢ contract means about 65%. ### What is the difference between Kalshi and Polymarket? Both are prediction markets. Kalshi has been a CFTC-regulated US exchange since 2020 and trades in dollars. Polymarket started as a crypto-based market outside the US and returned to the US in 2025 through a CFTC-licensed exchange it acquired. ### Are prediction markets better than polls? They are often at least as accurate, because traders combine polls with other information and have money at stake. They are not reliable everywhere: thin markets and long shots can be badly mispriced. ## Sources - CFTC: [CFTC Designates KalshiEX LLC as a Contract Market](https://www.cftc.gov/PressRoom/PressReleases/8302-20) (November 2020) - Axios: [Polymarket to return to U.S. after acquisition](https://axios.com/2025/07/21/prediction-market-polymarket-us) (July 2025) - CoinDesk: [U.S. CFTC gives go-ahead for Polymarket’s new exchange, QCX](https://www.coindesk.com/policy/2025/09/03/u-s-cftc-gives-go-ahead-for-polymarket-s-new-exchange-qcx) (September 2025) - Bürgi, Deng and Whelan (2026): [Makers and Takers: The Economics of the Kalshi Prediction Market](https://www.karlwhelan.com/Papers/Kalshi.pdf) - Yale Insights: [Wisdom of the Few? Prediction Markets Are Driven by a Small Number of Skilled Traders](https://insights.som.yale.edu/insights/wisdom-of-the-few-prediction-markets-are-driven-by-small-number-of-skilled-traders) - Wharton: [A Primer on Prediction Markets](https://wffi.wharton.upenn.edu/blog/a-primer-on-prediction-markets/)