Under the hood, prediction markets work a lot like a simple stock exchange — but for the outcome of an event. Here's the mechanics. Educational only, not financial advice.
Contracts that resolve to a value
You trade contracts tied to a yes/no question. At resolution, a "Yes" share is worth the full amount (e.g. $1) if the event happened and $0 if not. Your profit or loss is the difference between what you paid and that final value.
Buyers and sellers set the price
Like a stock, price is set by supply and demand in an order book: buyers bid, sellers ask, trades happen where they meet. More buying pressure lifts the implied probability; more selling lowers it.
Reading a position
Buy "Yes" at 40 cents and if it resolves Yes, each share returns $1 — a gain. If it resolves No, the shares are worth $0 — a full loss on that position. You can often sell before resolution to lock in a profit or cut a loss as the price moves.
What moves the price
New information — polls, news, results — shifts the crowd's estimate and the price with it. See what moves prices.
Manage the risk
Prices can swing hard and you can lose your entire stake in a position. Only risk what you can afford to lose and size positions sensibly — see risk management.
FAQ
How does a prediction market pay out?
Each contract resolves to a set value — for example $1 if the event happens, $0 if it doesn’t. Your profit or loss is the difference between that and what you paid.
Can I sell a prediction before the event ends?
Usually yes. Because prices move with new information, you can often sell your position early to lock in a gain or cut a loss before resolution.