Module 1 · Lesson 1
What is a prediction market?
A market where you trade on how an event turns out — and the price is really a probability in disguise.
- Read a contract price as a probability — and explain why 65¢ means about a 65% chance
- See why the Yes and No prices on a market sum to a dollar
- Explain what makes a price move, and why it's a live forecast rather than a fixed number
- Work out what a position is worth if you hold to the end or sell early
What a prediction market is
A prediction market is a place where you can trade on the outcome of an event, which can be anything from who wins a game to whether it rains tomorrow — as long as the result isn’t decided yet. Instead of buying a stock or a coin, you buy a contract tied to one possible outcome — one of the ways the event could end. If that outcome happens, your contract pays out.
Prediction markets trade contracts (also called shares) — the exact term can vary by platform.
That’s the whole idea: an event, its possible outcomes, and contracts that pay out on the one that happens.
Platforms list events in different ways. Some use a title, like the one we’ll follow through this entire lesson: USA vs. Spain — Winner. Others phrase it as a question, such as “Who will win tonight’s game?” Either way, it’s the same event with the same possible outcomes. This event has two — USA wins and Spain wins — and each is traded as its own market. On each you can buy Yes (if that team wins) or No (if it doesn’t). 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
Start here, because every other piece connects back to it. Look at the “USA wins” 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.
Drag a price, or use ▲ ▼, to change it.
For learning, treat price and probability as the same number — 65¢ means about a 65% chance. (The exact price a platform shows can vary slightly — last trade, bid, ask, or midpoint. The probability is just that price as a percent, so it varies the same way.)
The two prices always sum to $1
Exactly one outcome will happen, and the winner pays $1. Every Yes + No is $1.00 across a row, and the two teams’ prices split that same dollar down each column. The probabilities do it too — they always fill 100%. This is also why buying No on one team is the same as buying Yes on the other. Watch the rows and columns both add up:
Drag a price or use ▲ ▼. Every row and column still adds to $1.
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 USA and Spain across one game — select any point to see what moved it.
Select any point to see its time and the news behind the move.
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” Yes 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.
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.
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.
Select a Yes or No cell to choose your side, then drag its price or use ▲ ▼ to set your entry. The other side changes so the two still add to $1.
Settles when the game ends — pays $1.00 per contract if your side wins, $0.00 if not.
Market conditions can shift. The price you actually get may differ from the price shown, and the number of contracts available at each price can change. The examples in this lesson assume the displayed prices and contracts are always available.
A price is a probability you can trade
A prediction market puts a price on each possible outcome of an event, and that price is the crowd’s probability — 65¢ means about a 65% chance. It moves as news arrives, the two sides always sum to a dollar, and you can hold to resolution or sell along the way. That’s the whole machine: a live forecast with a price on it.
You watched the price move as news arrived. Which raises the real question: can a crowd of strangers actually forecast better than the experts? That’s what comes next — why markets can predict, and when they can’t. →
Related lessons
Next in Module 1:
- Lesson 2: Why markets can predict — The information aggregation thesis. Why a market full of strangers can sometimes forecast more accurately than experts.
From the commentary:
- Why prediction markets matter now — An introduction to the institutional moment prediction markets are having in 2026.