What is a prediction market? A beginner's guide (2026)
A prediction market is an exchange where people buy and sell contracts that pay out based on the outcome of a future event. The price of those contracts — typically between $0 and $1 — reflects the market's aggregated estimate of how likely the event is to occur.
How prices map to probabilities. A contract that pays $1 if Candidate A wins, currently trading at $0.62, implies the market thinks Candidate A has a 62% chance of winning. If new information makes the win more likely, buyers bid the price up; if less likely, sellers push it down.
Why they tend to be accurate. Prediction markets aggregate information from many traders, each putting money behind their beliefs. Decades of academic research — from the Iowa Electronic Markets through PredictIt, Polymarket and Kalshi — show that liquid prediction markets are competitive with, and often beat, expert forecasts.
Who uses them. Hedge funds and quant traders use prediction markets to hedge macroeconomic exposure. Journalists cite them as a real-time sentiment gauge. Forecasters and policy researchers use them as a calibration tool. Increasingly, ordinary retail traders use them to express views on politics, sport, crypto and AI.
Real money vs play money. Polymarket and Kalshi settle in real currency (USDC and USD respectively). Manifold uses play-money credits. Both formats produce useful probability estimates when liquidity is high.
Frequently asked questions
What is the difference between a prediction market and a betting site?
Betting sites quote fixed odds set by a bookmaker who takes the other side. Prediction markets are peer-to-peer — odds emerge from supply and demand between traders. The information-aggregation properties of prediction markets are generally stronger.
Are prediction markets gambling?
Legally, they are classified differently by jurisdiction. The US CFTC treats Kalshi's contracts as derivatives, not gambling. The UK Gambling Commission treats Smarkets and Betfair Exchange as licensed gambling. The economic activity is similar; the legal framing varies.