Module 1 · Lesson 1
What is a prediction market?
A market where you trade on whether a future event will happen — and the price is really a probability in disguise.
What a prediction market is
A prediction market is a place where you can trade on whether a future event will happen. Instead of buying a stock or a coin, you buy a contract tied to a question — and if you’re right about the outcome, it pays out.
That’s the whole idea. Every prediction market is built around one question with a clear answer, and the contracts you trade are claims on what that answer turns out to be.
Let’s make it real with a game we’ll follow through this entire lesson. The question: “Will the USA beat Spain tonight?” The market lists two contracts — USA wins and Spain wins. Pick the side you think is more likely and buy it. Right when the game ends? Your contract pays. Wrong? It doesn’t.
One twist that makes this different from a betting shop: you’re not wagering against a bookmaker who sets the odds. You’re trading against other people — someone sells you “USA wins” only because they believe the opposite. The market is simply where all those views meet.
The price is a probability
Here’s the idea the whole course rests on. Look at the “USA wins” side of the market below — it’s trading at 65¢. That number isn’t just a cost. It’s a forecast: the crowd thinks there’s a 65% chance the USA wins. Price and probability are the same number.
Grab the price and drag it up or down. Watch the percentage move with it — because on a market that pays $1, the price is the odds.
The two prices always sum to $1
You may have already noticed it on the card above: USA and Spain always add up to $1.00. That’s not a coincidence — someone has to win.
Here’s the math. The two contracts cover every possibility: either USA wins or Spain wins, and exactly one will. So their probabilities always fill up 100% between them — whatever one side is, the other is the rest:
And since price is probability, the prices do the exact same thing — they always complete the dollar:
The price moves as news arrives
The price isn’t fixed — it breathes with the game. But it doesn’t move on its own: every jump on the chart is the market repricing as news arrives. Here are the USA and Spain across one game — click any point to see what moved it.
Click any point to see what happened. Both contract prices update together.
Follow the line from left to right. Before tip-off, people think the USA will win, so “USA wins” trades higher than Spain — more buyers than sellers hold the price up. When the USA falls behind at halftime, belief flips: holders rush to sell before it’s too late, sellers pile up faster than buyers, and the price drops hard. Then the USA storms back in the second half — now everyone wants in, buyers outnumber sellers, and the price climbs fast. As the win becomes near-certain at the end, there’s almost no one left willing to sell cheaply, so the price is bid all the way up toward $1.
That’s the whole engine: more buyers than sellers pushes the price up, more sellers than buyers pushes it down. The Law of Supply and Demand in action. Every move you see is the crowd repricing what it now believes will happen.
Two ways your position ends
Let’s say you bought 100 “USA wins” contracts at 65¢ — $65 in. From here, only one of two things happens to that position, and the second one is your choice, not the market’s.
Wait for it to resolve
Hold to the final whistle. The market resolves and stops. If USA won, every contract pays $1. If they lost, $0. Whatever you paid is history — only the outcome matters.
Sell before the end
Don’t want to wait? If the price has climbed to, say, 80¢ after a Spain injury, sell now and pocket the gain per contract. Most traders never hold to resolution — they move in and out as the price moves.
Here’s every outcome, computed together. Pick a contract, set your entry price and how much you put in — each result shows its own math, and every number traces back to the game you’ve been watching.
Price is probability
A prediction market lets you trade on whether something will happen, and the price you pay is the crowd’s probability for it. When the event resolves, right pays $1 per contract, wrong pays $0 — and you can also sell any time before then. Here’s that engine with real numbers.
In prediction markets, price equals probability. Say you buy USA wins at 65¢ — the same as saying the crowd gives USA a 65% chance.
Buy 100 contracts and your cost is $65 (100 × 65¢ = $65). If the USA wins, each contract pays $1, so you collect $100 (100 × $1 = $100) — a $35 profit ($100 payout − $65 cost = $35).
Scale it up: 1,000 contracts costs $650 (1,000 × 65¢ = $650) and a win pays $1,000 (1,000 × $1 = $1,000) — a $350 profit ($1,000 − $650 = $350).
And you don’t have to wait for the final whistle. Say the USA takes an early lead and the price climbs to 80¢ (the new market price). Sell your 1,000 contracts right then and you collect $800 (1,000 × 80¢ = $800) — a $150 profit ($800 − $650 cost = $150), locked in before the game even ends.
Related lessons
Next in Module 1:
- Lesson 2: Why prediction markets exist — The information aggregation thesis. Why a market full of strangers can sometimes forecast more accurately than experts.
- Lesson 3: How contracts work — The mechanics of buying, selling, and holding contracts. Order books, liquidity, and the friction between price and execution.
- Lesson 4: The current landscape — Kalshi, Polymarket, sportsbooks, and forecasting platforms. Where prediction markets sit in the broader ecosystem.
From the commentary:
- Why prediction markets matter now — An introduction to the institutional moment prediction markets are having in 2026.