Module 2 · Lesson 2
Shares, contracts, and settlement
Key takeaways
- When you take a position, what you actually own is a contract — a claim that pays $1 if you’re right and $0 if you’re wrong. The price you paid was just the market’s estimate of how likely “right” was
- Every contract has two sides: YES and NO. Buying YES and buying NO are opposite bets on the same question, and their prices always sum to about $1 — because between them, one of them is going to be right
- A market with more than two outcomes is just several of these contracts side by side. Each outcome is its own YES/NO contract, and the YES prices across all the outcomes sum to about $1
- Settlement is the moment the market resolves: the winning side’s contracts pay $1 each, the losing side’s pay $0, and the position you were holding turns into cash. Everything before that is just the price moving
What you actually own
In Module 1 you learned to read a price. Now we look at what’s underneath it — what you’re actually holding when you “take a position,” and what happens to it in the end.
When you buy into a prediction market, you’re not buying a share of a company or a unit of currency. You’re buying a contract: a simple, binding claim that pays exactly $1 if a specific thing happens, and exactly $0 if it doesn’t. That’s the whole instrument. A contract on “will it rain tomorrow” pays you $1 if it rains and nothing if it doesn’t.
The price you pay is set by the market, and it’s always somewhere between $0 and $1 — because it’s a probability wearing a dollar sign. Pay $0.60 for a contract, and you’ve paid the market’s estimate that the event is 60% likely. If you’re right, it settles at $1 and you made 40 cents. If you’re wrong, it settles at $0 and you lost your 60. That gap between what you paid and what it settles at is the whole game.
So a “share” or a “contract” here isn’t a fuzzy stake in something — it’s a precise claim on a single dollar, contingent on one outcome. Hold it to the end and it becomes either a dollar or nothing.
The two sides of a contract: YES and NO
Here’s the first thing that surprises people coming from Module 1’s clean examples. Every contract has two sides you can buy — and buying the opposite side is a completely valid position.
Take a market on “Will the incumbent win?” You can buy YES — a contract that pays $1 if they win. Or you can buy NO — a contract that pays $1 if they don’t. These are two different contracts on the same question, and you can buy whichever one you think is mispriced.
Their prices are linked by a simple rule: YES and NO always sum to about $1. If YES is trading at 65¢, NO is trading at about 35¢ — because between the two of them, one is certain to pay out. If you could buy both for less than a dollar together, you’d be guaranteed a profit, so the market never lets that happen. Buying NO at 35¢ isn’t exotic or backwards; it’s just betting the other way, and it pays $1 if you’re right, exactly like YES does.
Why “about” a dollar and not exactly? Because of the spread you met in the last lesson. On a real platform you might see YES at 65¢ and NO at 36¢ — summing to $1.01, not $1.00. That extra penny is the gap between the buy and sell prices, the market’s small friction. The idea is still “they sum to a dollar”; the penny is just the real world’s version of it.
More than two outcomes: a market is a stack of contracts
Module 1’s examples had two outcomes — one side wins, the other loses. But plenty of real markets have many possible outcomes: which of eight candidates wins an election, which team takes a championship, which company ships first. Here’s the key idea that makes those markets readable:
A multi-outcome market is just several YES/NO contracts stacked side by side — one for each outcome.
Take an election with four candidates. The market isn’t one four-way bet. It’s four separate contracts: “Candidate A wins” (its own YES/NO), “Candidate B wins” (its own YES/NO), and so on. Each one is exactly the kind of contract from the last section — YES pays $1 if that candidate wins, NO pays $1 if they don’t, and each contract’s own two sides sum to about $1.
What ties them together is a second rule: the YES prices across all the outcomes sum to about $1 too. If A’s YES is 50¢, B’s is 30¢, C’s is 15¢, and D’s is 5¢, they add to 100¢ — because exactly one candidate will win, so the market’s total confidence across all of them has to equal one whole dollar. If those YES prices summed to more than a dollar, something would be mispriced.
So when you land on a real platform and see a market listing eight outcomes, each with its own price, you’re not looking at something new. You’re looking at eight ordinary contracts, each with its own YES and NO, all sharing one constraint: exactly one of them will pay off. Read any single row and it’s the same instrument you already understand.
This is the structure Module 1 pointed you toward, and it’s worth pausing on, because it’s the thing that most often makes a newcomer feel lost on a real platform: they expected one clean bet and found a stack of contracts with their own YES/NO sides. Now you know it’s just the two-sided contract, repeated once per outcome.
One market, four teams — and it's really four contracts
A multi-outcome market is just a stack of ordinary YES/NO contracts, one per outcome. Pick a team below to load its contract into the calculator. Watch the two totals: each contract’s YES + NO ≈ $1, and every team’s YES price across the market also ≈ $1.
Which team wins the championship?
Prices move. Each team’s price drifts as opinion shifts — and at every moment, the four YES prices still add to about a dollar. Reading why a price moves is the subject of Module 4.
The layout varies; the structure doesn’t. Real platforms each arrange this differently — but underneath, every multi-outcome market is the same thing: one contract per outcome, each with its own YES and NO price, and exactly one that pays off. Once you can see that structure, you can read any of them.
Settlement: how a position turns back into money
Everything so far has been about holding a position. Settlement is how it ends.
When the real-world event finally happens — the election is called, the game ends, the deadline passes — the market resolves. Resolution is the moment the outcome becomes official, and it does one simple thing to every contract: the winning side pays $1, the losing side pays $0.
If you held YES on the candidate who won, each of your contracts is now worth exactly $1, and that money is yours — the position has turned back into cash. If you held YES on a candidate who lost, those contracts are worth $0, and the money you paid for them is gone. The NO side is the mirror: NO on a losing candidate pays $1 each, NO on the winner pays nothing.
The important thing to see is that settlement is the only moment the price stops being an estimate and becomes a fact. Up until resolution, the price was the market’s guess — 60¢, 72¢, 45¢, moving around as opinion shifted. At settlement, all of that collapses to one of two numbers: $1 or $0. Every contract you hold is worth exactly what it pays, no more guessing.
One thing that trips people up here: a platform might not show you “$1.” It might tell you a winning contract returns “1.61×” your stake, or that your position “pays 1.61.” That’s the same fact wearing a different outfit — a contract you bought at 62¢ that settles at $1 has returned about 1.61 times what you put in ($1.00 ÷ $0.62 ≈ 1.61). The settlement value is always $1; the “1.61” is your return per dollar, which is just the odds view of the same number. If those formats — decimal odds and the rest — feel unfamiliar, that’s fine: reading a price across all its formats is the subject of Module 4. For now, the mechanic underneath every version is the same: the winning contract is worth one dollar.
You don’t have to hold to settlement, of course. Most of the time you can sell your contract back into the market before the event resolves, taking whatever the price is then — that’s what the order book and the AMM from the last lesson are for. Settlement is just the backstop: the guaranteed moment when a contract becomes its final dollar or its final zero, whether you sold early or held all the way.
Settlement — where the price stops being a guess
Here's the position from the market above — Lions YES, the same bet you were pricing. Until the championship happens, its value is just the market's estimate. Settlement is the moment it collapses into a fact: the winning side becomes worth $1, the losing side $0. Adjust the position if you like, then settle — pick a winner yourself, or let the championship be decided at random.
Market rules
That's settlement. Every contract you hold ends the same way: the moment the outcome is official, an estimate that spent months drifting between 0 and 100¢ collapses to exactly $1 or exactly $0. Win or lose, the guessing stops and your position becomes cash.
Where settlement can get complicated
One honest note before the bottom line. “The winning side pays $1” sounds clean, and usually it is — but it depends entirely on the market knowing, unambiguously, what the outcome was. Most of the time that’s obvious: a candidate wins, a game ends with a score. But some questions are genuinely hard to settle — an event that half-happens, a result that’s disputed, a question whose wording turns out to be ambiguous. Who decides the official outcome, and how is its own real topic — and it’s what a later lesson in this module, on resolution and oracles, is about. For now, hold the clean version: the market resolves, the winning side gets its dollar.
The bottom line
A position is a contract — a claim that pays $1 if you’re right, $0 if you’re wrong, priced in between as a probability. Every contract has a YES and a NO side, opposite bets that sum to about a dollar. A multi-outcome market is just a stack of these contracts, one per outcome, whose YES prices also sum to about a dollar. And settlement is the end: the winning side pays $1, the losing side pays $0, and your position becomes cash.
You now know not just what a price means, but what you’re actually holding when you act on it — and what it turns into when the question is finally answered.
Next, we look at what makes a market easy or hard to trade in the first place: how much depth sits behind the price, and what the gap between buying and selling really costs you — liquidity, and the spread.
Related lessons
Previous:
- Module 2, Lesson 1: Order Books vs. Automated Market Makers — The two machines that produce a price, and how to tell which one you’re trading in.
Next:
- Module 2, Lesson 3: Liquidity and the Spread — What makes a market easy or hard to trade: the depth behind the price, and what the gap between buying and selling really costs you.