Prediction markets are exchanges where participants trade contracts tied to the outcome of future events. Instead of betting against a bookmaker, you trade with other users. The market price of a contract reflects the crowd's aggregated probability estimate for an event occurring.
If you buy a "YES" contract for "Will Arsenal win the Premier League?" at 15¢, you receive $1 if Arsenal wins and $0 if they don't. The 15¢ price implies the market thinks there's approximately a 15% chance of this happening.
Unlike traditional bookmakers, prediction markets have no built-in margin — prices are set by supply and demand. This can create opportunities when market prices diverge from true probabilities, though liquidity and fees remain practical considerations.
You believe the event will happen. Pay the current YES price (e.g., 62¢) and receive $1 if correct, $0 if wrong.
You believe the event won't happen. Pay the current NO price (e.g., 38¢) and receive $1 if correct, $0 if wrong.
Unlike fixed-odds betting, you can sell your position before the event resolves. If you bought YES at 40¢ and the price rises to 70¢, you can sell for a profit without waiting for the outcome. This is similar to trading stocks.
Orders from people wanting to buy YES shares. They sit below the current price, waiting for sellers willing to accept less. The highest bid is the "best bid."
Orders from people wanting to sell YES shares (or buy NO). They sit above the current price, waiting for buyers willing to pay more. The lowest ask is the "best ask."
The gap between the best bid and best ask is the "spread." Tight spreads (1-2¢) indicate liquid markets where it's cheap to trade. Wide spreads (5-10¢+) mean higher transaction costs and less reliable price signals. In the example above, the spread is 63¢ - 61¢ = 2¢.
The largest prediction market by volume. Built on Polygon blockchain, trades settle in USDC stablecoin. Global access (except US for betting), no KYC for small amounts.
The first CFTC-regulated prediction market exchange in the US. Trades in USD, requires full KYC. Recently approved for political event contracts.
The original betting exchange, operating since 2000. Users bet against each other rather than the house. Massive sports liquidity, especially for football.
Run by Victoria University as a research project. CFTC no-action letter allows limited trading. $850 max position per market.
Bookmakers build 3-10% margins into odds. Prediction markets only charge fees on trades or winnings, often resulting in better effective odds.
Lock in profit or cut losses before the event resolves. No waiting for the final whistle if the market moves in your favor.
Markets aggregate information from many participants. Prices often reflect true probabilities better than any individual model.
Unlike bookmakers who restrict winning bettors, exchanges welcome sharp traders — they add liquidity and improve price accuracy.
While Polymarket and Kalshi focus on political and economic events, the underlying mechanics are identical to sports betting exchanges like Betfair. Understanding prediction markets helps you:
Prices directly translate to probabilities. A team trading at 35¢ to win implies a 35% chance. This is cleaner than converting bookmaker odds.
If your model says 45% but the market says 35%, you have a potential edge. The gap between your estimate and market price is your expected profit margin.
Betfair Exchange allows trading during matches. If your model updates faster than the market (e.g., tracking xG live), you can trade on information advantages.
Took a pre-match position that's now winning? Sell some shares to lock in profit. This risk management isn't possible with fixed-odds bookmakers.
Betfair Exchange is the primary prediction market for football. Premier League matches regularly see £10M+ matched per game. The closing odds (just before kickoff) are considered the most accurate probability estimates available — beating them consistently is the benchmark for any model.
Major events have deep liquidity; niche markets may have wide spreads or insufficient volume to execute large trades at quoted prices.
Betfair charges 5% on net winnings. If you're scalping small edges with high turnover, commission can eliminate your profits.
Polymarket isn't available to US residents for betting. Kalshi faces ongoing CFTC battles over event types. Rules can change.
Who decides if an event occurred? Platforms use oracles or committees. Edge cases (abandoned matches, rule changes) can lead to contested outcomes.
For crypto-based platforms like Polymarket, your funds are held in smart contracts. Smart contract bugs, hacks, or regulatory seizures could result in loss of funds. This risk doesn't exist with regulated exchanges like Kalshi or Betfair.
Watch markets without trading. Compare Polymarket/Kalshi prices to bookmaker odds. Notice how prices move as news breaks.
For sports: Betfair Exchange. For politics/economics: Polymarket (global) or Kalshi (US). Start small to understand the interface.
Learn to read depth, identify the spread, and place limit orders. Market orders cost more due to slippage — patience is rewarded.
Record every trade. Calculate your ROI after fees. Are you consistently beating the closing line? That's the real test of edge.
This article is educational only and does not constitute financial or betting advice. Prediction markets involve real financial risk. Regulatory status varies by jurisdiction — verify legality in your location before participating.